Capital Markets Development

From Making Finance Work for Africa

The existence of securities markets is an important element in the financing of a modern economy. Given their central role in the financial sector, their regulation is fundamental to a country’s financial sector development efforts as a tool of ensuring the stability of the financial sector, ensuring investor protection, thereby engendering investor confidence, and facilitating an economy’s integration with international markets.

Capital market regulation models differ widely across Africa as legislation and regulatory structures vary between jurisdictions, reflecting both local market conditions and varied historical backgrounds. In some countries, capital market regulation falls in the realm of the central bank’s regulatory powers; in others, it is within the regulatory prevue of the ministry of finance or an independent securities commission or authority; yet in others, the regulatory role is given to another ministry or office of the state, or to an exchange itself, as a self-regulatory organization.

The Core Principles of Securities Regulation (Core Principles), developed by the International Organization of Securities Commissions (IOSCO), are recognized as the key global standard for securities regulation. Given the wide variation in levels of capital market development, the IOSCO Core Principles identify three key objectives which “form a basis for an effective system of securities regulation”, and namely: (i) the protection of investors; (ii) ensuring that markets are fair, efficient and transparent; and (iii) the reduction of systemic risk.

An effective regulatory framework for capital markets thus includes powers for licensing and monitoring market participants and enforcing trading rules and procedures, the ability to undertake trading surveillance, and powers to impose sanctions against market abuse or manipulation. In addition, it includes legal provisions to deal with corporate governance, accounting standards, ownership, transfer of securities and capital adequacy requirements.

The current financial crisis has cast financial market regulation under the spotlight. The cost and complexity of regulation needs to be balanced with the level of development of the market while being cognisant of the country’s regulatory capacity. Appropriate oversight or regulation of the capital markets will continue to be a key focus in ensuring the sustainable operation of African capital markets.