Our financial markets progressing

Tolea Securities Limited through a judicial review process challenged the decision of the Capital Markets Authority (CMA) to reject the application for approval of Exchange Traded Funds (ETF) securities on the ALTX Stock Exchange in Uganda. Being the first time the Capital Markets processes were being challenged in court, it was paramount that the precedent set by the court would either curtail or propel innovation in financial markets in Uganda. The decision of the court was that the CMA wrongfully rejected the prospectus for Tolea Securities to approve the ETF Securities that Tolea sought to issue on the ALTX exchange. The court further directed CMA to evaluate Tolea’s prospectus/application through the ALTX Rules of 2016 which applied to the ETF securities.

A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, and precious metals. Tolea securities sought to trade ETF securities on the ALTX exchange and as such, needed CMAs approval of their prospectus to trade. What is important is that ETF Securities are not common in Uganda and the court also noted that the subject of securities is novel in Uganda and complex in nature. An Exchange-Traded Fund (ETF) is a basket of securities that trade on an exchange such as stock that often has an underlying asset. In the case of Tolea Securities ETF programme, the ETFs were pegged to government securities. The said ETF securities was to be traded on the ALTX exchange.

The ALTX exchange was targeting investors who are unbanked, banked customers who will likely prefer either to invest outside the Commercial Bank market to take advantage of ALTX’ flexible trading model as well as speedy and secure settlement procedures, investors who prefer to use alternative banking such as Mobile Money and those wishing for a convenient structured security such as an ETF that saves the investor the complexities and trouble of creating their own treasury portfolio and managing maturity.

ALTX is well-positioned for the forthcoming introduction Designated Market Makers in the East Africa treasury Debt markets, where ALTX’ capabilities are expected to provide convenience to stakeholders in the debt markets. It is important to note that Capital markets, especially financial markets in Uganda, are at a nascent stage. An introduction of the ETF securities onto the Financial markets would perhaps disrupt the markets and cause disruption to enable the common-man to invest in government securities as well with ease.
As a government move to have inclusion of populace to financial markets, the Bank of Uganda, acting as fiscal agent for the Government of Uganda, has sought to expand the distribution of treasury instruments to local investors. In its initiative, the Central Bank expanded the number of Primary Dealers from six to include all 25 Commercial Banks.

This was expected to enable the securities to reach more people, particularly the customers of the newly-included banks, to access treasury instruments for saving and investment among the banked community and to bear the following benefits to the economy. Many Ugandans are unbanked or use Mobile Money as a medium of transaction/banking. What the ETF Security would do would be to tap into these unbanked Ugandans who would also want to benefit from the Ugandan financial markets.
Ian Mutibwa,
[email protected]