Capital Market Integration Capital Market Integration for ECOWAS Common for ECOWAS Common for ECOWAS Common for ECOWAS Common Investment Market.Investment Market.

Jonathan Aremu Ph.DJonathan Aremu Ph.DC lC lConsultant,Consultant,

ECIMECIM11

I t d tiI t d tiIntroductionIntroduction

There are a range of well known reasons why the capital There are a range of well known reasons why the capital markets are currently in a state of rapid change. These markets are currently in a state of rapid change. These y p gy p ginclude:include:1) the consolidation and globalisation amongst capital 1) the consolidation and globalisation amongst capital market participants, most evidently amongst investment market participants, most evidently amongst investment banks and issuers, but also progressively amongst investors banks and issuers, but also progressively amongst investors and exchanges;and exchanges;and exchanges;and exchanges;2) intense competition between all types of capital market 2) intense competition between all types of capital market participants, including exchanges, new trading mechanisms, participants, including exchanges, new trading mechanisms, investment banks, brokers, issuers, and investors;investment banks, brokers, issuers, and investors;3) increased demand for capital market instruments at both 3) increased demand for capital market instruments at both the retail and the institutional level and both for equities andthe retail and the institutional level and both for equities andthe retail and the institutional level, and both for equities and the retail and the institutional level, and both for equities and bonds;bonds;

I t d ti (C t )I t d ti (C t )Introduction(Cont..)Introduction(Cont..)

4) the growing importance of funded and private pension 4) the growing importance of funded and private pension schemes as a result of demographic trends in many of the schemes as a result of demographic trends in many of the g p yg p ydeveloped and developing markets;developed and developing markets;5) the move from national to sectoral allocation of 5) the move from national to sectoral allocation of

ffinvestments, being spurred in Europe by the introduction of investments, being spurred in Europe by the introduction of the Euro.the Euro.6) increased supply of capital by companies on a border6) increased supply of capital by companies on a border--6) increased supply of capital by companies on a border6) increased supply of capital by companies on a border--less basis, partly as a result of large privatisation schemes, less basis, partly as a result of large privatisation schemes, and partly by new entrepreneurial companies;and partly by new entrepreneurial companies;7) the demutualisation of exchanges into for7) the demutualisation of exchanges into for--profit profit companies;companies;

I t d ti (C t )I t d ti (C t )Introduction (Cont...)Introduction (Cont...)

8) rapid technological advancement, including in the 8) rapid technological advancement, including in the internet, einternet, e--business, wireless technology, and new software business, wireless technology, and new software ,, , gy,, gy,for market participants;for market participants;9) a desire to price explicitly the risks of trading, and if 9) a desire to price explicitly the risks of trading, and if possible to reduce them; andpossible to reduce them; and10)the current wave of deregulation and liberalisation in 10)the current wave of deregulation and liberalisation in most of the worlds capital marketsmost of the worlds capital marketsmost of the world s capital markets.most of the world s capital markets.

These trends are creating intense pressures on all markets, These trends are creating intense pressures on all markets, g p k ,g p k ,including emerging ones, to lower crossincluding emerging ones, to lower cross--border transaction border transaction costs of all types, to allow market participants to deliver services costs of all types, to allow market participants to deliver services

b d d t d ll th f f i k b d d t d ll th f f i k across borders, and to reduce all the many forms of risks across borders, and to reduce all the many forms of risks inherent in the international trading processinherent in the international trading process..

I t d ti (C t )I t d ti (C t )Introduction(Cont...)Introduction(Cont...)

While it is possible to further all these goals at a domesticWhile it is possible to further all these goals at a domesticlevel the potential gains of doing so at a regional level arelevel the potential gains of doing so at a regional level arelevel, the potential gains of doing so at a regional level are level, the potential gains of doing so at a regional level are significantly larger.significantly larger.For this reason, the advancement of regional capital market For this reason, the advancement of regional capital market integration has become widely perceived as critically integration has become widely perceived as critically important, and not just by market participants.important, and not just by market participants.I t t i ti i l it l k t i t ti hI t t i ti i l it l k t i t ti hInterest in promoting regional capital market integration has Interest in promoting regional capital market integration has been taken up at the highest political levels, most evidently been taken up at the highest political levels, most evidently by the Economics and Finance Ministers in the EU , but also by the Economics and Finance Ministers in the EU , but also y ,y ,elsewhere as well as including ECOWAS under the elsewhere as well as including ECOWAS under the Common Investment Market initiative recently adopted by Common Investment Market initiative recently adopted by Authority of the Head of States in the regionAuthority of the Head of States in the regionAuthority of the Head of States in the regionAuthority of the Head of States in the region

A What is Capital Market A What is Capital Market ppIntegration?Integration?

The term integration in the context of the capital markets has been The term integration in the context of the capital markets has been used to mean different things. It can refer to an environment used to mean different things. It can refer to an environment where: where:

1)1) Identical securities are traded at essentially the same price Identical securities are traded at essentially the same price across the markets in a region after adjustment for foreignacross the markets in a region after adjustment for foreignacross the markets in a region after adjustment for foreign across the markets in a region after adjustment for foreign exchange rates;exchange rates;

2)2) Investors can buy and sell securities in the regions markets Investors can buy and sell securities in the regions markets ith t t i tiith t t i tiwithout restriction;without restriction;

3) All types of participants in the capital markets can offer their 3) All types of participants in the capital markets can offer their services throughout the region without restriction; or services throughout the region without restriction; or g g ;g g ;

4) Capital markets are not fragmented (a term which itself is full of 4) Capital markets are not fragmented (a term which itself is full of ambiguity).ambiguity).

Th f tt ib t f i t l l li k d b t tTh f tt ib t f i t l l li k d b t tThese four attributes of an environment are closely linked, but not These four attributes of an environment are closely linked, but not identicalidentical

A What is Capital Market A What is Capital Market Integration?(Cont..)Integration?(Cont..)

Regional financial markets are said to be integrated Regional financial markets are said to be integrated g gg gwhen there is a perfect capital mobility such that there when there is a perfect capital mobility such that there is no relation between domestic saving and domestic is no relation between domestic saving and domestic investment as saving responds to the regionalinvestment as saving responds to the regionalinvestment, as saving responds to the regional investment, as saving responds to the regional opportunities for investment while investment is opportunities for investment while investment is financed by the regional pool of capital.financed by the regional pool of capital.

Translated into ECOWAS terms, capital market Translated into ECOWAS terms, capital market integration in the region means that capital shouldintegration in the region means that capital shouldintegration in the region means that capital should integration in the region means that capital should move freely across the national boundaries of Member move freely across the national boundaries of Member countries in the entire region with minimal friction countries in the entire region with minimal friction gg(transaction costs).(transaction costs).

77

B Capital Market Integration B Capital Market Integration p gp gDefinition in PracticeDefinition in Practice

Issuers and investors as well as their Issuers and investors as well as their intermediaries should be free to act across the intermediaries should be free to act across the region and in any member state.region and in any member state.

Intermediaries in the capital market activities Intermediaries in the capital market activities should be able to act across the region and should be able to act across the region and they should be recognized everywherethey should be recognized everywherethey should be recognized everywhere.they should be recognized everywhere.

There is convergence of accounting standardsThere is convergence of accounting standardsThere is convergence of accounting standards There is convergence of accounting standards across the countries in the regionacross the countries in the region

Integration of clearing and settlement systems Integration of clearing and settlement systems should be availableshould be available

C What Capital Market C What Capital Market ppIntegration is NotIntegration is Not

A single market serving several A single market serving several countries(countries(ii e UEMOA/BRVM) does note UEMOA/BRVM) does notcountries(countries(ii e UEMOA/BRVM) does not e UEMOA/BRVM) does not necessarily imply integration unless necessarily imply integration unless impediments to the crossimpediments to the cross border flow ofborder flow ofimpediments to the crossimpediments to the cross--border flow of border flow of capital are completely removed removedcapital are completely removed removed

Therefore, both within region single Therefore, both within region single , g g, g gmarkets and within region multiple markets and within region multiple markets can still be fragmentedmarkets can still be fragmentedmarkets can still be fragmentedmarkets can still be fragmented

D Why Integrate Capital D Why Integrate Capital y g py g pMarkets in ECOWAS?Markets in ECOWAS?

Integrated capital markets mean:Integrated capital markets mean:Deeper capital markets for the operatorsDeeper capital markets for the operatorsp p pp p pA single pool of liquidity available to regional actorsA single pool of liquidity available to regional actorsMore competition leading to greater efficiencyMore competition leading to greater efficiencyA greater range of investment and opportunity to enjoyA greater range of investment and opportunity to enjoyA greater range of investment and opportunity to enjoy A greater range of investment and opportunity to enjoy economies of scale.economies of scale.

Results in a more efficient financial system and Results in a more efficient financial system and increased output more jobs and lower pricesincreased output more jobs and lower pricesincreased output, more jobs and lower prices.increased output, more jobs and lower prices.Drying up of official sources of external capitalDrying up of official sources of external capitalLimited domestic pool of savingsLimited domestic pool of savingsLimited domestic pool of savingsLimited domestic pool of savingsNational stock markets too smallNational stock markets too smallFacilitation of foreign direct and portfolio investmentFacilitation of foreign direct and portfolio investmentFacilitation of foreign direct and portfolio investmentFacilitation of foreign direct and portfolio investment

55

Why Integrate Capital Why Integrate Capital y g py g pMarkets in ECOWAS ?(Cont..)Markets in ECOWAS ?(Cont..)

Lower Prices for Financial ServicesLower Prices for Financial ServicesLower Prices for Financial ServicesLower Prices for Financial ServicesMore Efficient, Liquid and Broader Securities MarketsMore Efficient, Liquid and Broader Securities MarketsInnovative Financial Products and ServicesInnovative Financial Products and ServicesInnovative Financial Products and ServicesInnovative Financial Products and ServicesIndustrial Transformation of MarketsIndustrial Transformation of MarketsCheaper Corporate FinancingCheaper Corporate FinancingCheaper Corporate FinancingCheaper Corporate FinancingMore Efficient Allocation of CapitalMore Efficient Allocation of CapitalHigher ReturnsHigher ReturnsHigher ReturnsHigher ReturnsEnhanced RiskEnhanced Risk--Return FrontiersReturn FrontiersImproved Macroeconomic PerformanceImproved Macroeconomic PerformanceImproved Macroeconomic PerformanceImproved Macroeconomic Performance

Other Reasons for Capital Market Other Reasons for Capital Market Ot e easo s o Cap ta a etOt e easo s o Cap ta a etIntegration in ECOWASIntegration in ECOWAS

Reduced transaction costsReduced transaction costsM di ifi d i t t tf li fM di ifi d i t t tf li fMore diversified investment portfolio for More diversified investment portfolio for investorsinvestorsMore liquid and broader securities marketMore liquid and broader securities marketBetter access by firms to longBetter access by firms to long--term funding term funding y gy g ggCheaper financing alternatives given lower Cheaper financing alternatives given lower transaction coststransaction coststransaction costs transaction costs More efficient allocation of capital as savings More efficient allocation of capital as savings can flow more easily and cheaply to investmentcan flow more easily and cheaply to investmentcan flow more easily and cheaply to investment can flow more easily and cheaply to investment opportunities.opportunities.

Barriers to Capital Market Barriers to Capital Market ppIntegration in ECOWASIntegration in ECOWAS

Currency ConvertibilityCurrency Convertibility//Domestic/Regional Monopolistic PracticesDomestic/Regional Monopolistic Practices

Multiple RegulatorsMultiple Regulatorsp gp gLegislative and Regulatory ImpedimentsLegislative and Regulatory ImpedimentsTransaction CostsTransaction CostsTransaction CostsTransaction CostsTaxationTaxationAccountingAccountingA Lack of InformationA Lack of InformationA Lack of InformationA Lack of InformationHistory and CultureHistory and Culture

Future of ECOWAS Regional Future of ECOWAS Regional C tiC tiCooperationCooperation

What do we want ?What do we want ?To give investors a closer view on the whole regionTo give investors a closer view on the whole regionTo harmonizeTo harmonize

corporate governance standards;corporate governance standards;trading procedures;trading procedures;DepositaryDepositarySecurities market regulatory agenciesSecurities market regulatory agenciesExchange of trading data:Exchange of trading data:

What do we have now?What do we have now?Exchange of realExchange of real--time trading data for members of cooperating time trading data for members of cooperating stock exchange (stock exchange (ii e UEMOA)e UEMOA)Exchange of data for listed securities at national Exchange of data for listed securities at national levesleves;;Exchange of information disclosed by listed companies;Exchange of information disclosed by listed companies;

Some Urgency is Required in Some Urgency is Required in ECOWASECOWAS

Most countries are rapidly reforming their Most countries are rapidly reforming their exchange control regimes with capital accountexchange control regimes with capital accountexchange control regimes with capital account exchange control regimes with capital account liberalization in line with the current global liberalization in line with the current global dictatedictatePace of technological change, market Pace of technological change, market innovation and globalization is compelling innovation and globalization is compelling g p gg p gnation states to adjust fast or be marginalized nation states to adjust fast or be marginalized in the liberalized financial worldin the liberalized financial worldWithout competitive investment environment Without competitive investment environment liquid markets issuers and investors under liquid markets issuers and investors under the the existing existing competing global market space will competing global market space will look elsewherelook elsewhere

Key Reforms to Foster Key Reforms to Foster Capital Market IntegrationCapital Market IntegrationCapital Market IntegrationCapital Market Integration

Greater capital market IntegrationGreater capital market IntegrationGreater capital market IntegrationGreater capital market Integration

Deep and More Resilient Capital marketsDeep and More Resilient Capital markets

Regional CooperationRegional CooperationStrengthening Building Minimizing Risks Removing HarmonizingStrengthening Building Minimizing Risks Removing Harmonizingg g g g g gg g g g g gCapital Markets Infrastructures Impediments rules andCapital Markets Infrastructures Impediments rules and

practicespracticesmoving toward riskmoving toward risk--based supervisionbased supervisionbased supervisionbased supervision

Regulatory reform *Clearing and *Addressing crossRegulatory reform *Clearing and *Addressing cross-- *capital account *capital account settlement systems settlement systems sectoralsectoral and crossand cross-- liberalizationliberalization

Pensions sector *Credit rating border issues Pensions sector *Credit rating border issues implementing implementing p gp gglobal global

Reform Reform best practices best practices

*Safeguarding *liberalization trade *Safeguarding *liberalization trade g gg g* Corporate market integrity services* Corporate market integrity services

governancegovernance

Integration Capital Markets Integration Capital Markets g pg pRest on Several PillarsRest on Several Pillars

PreconditionsPreconditionsMultidimensional approach to integrationMultidimensional approach to integrationMultidimensional approach to integration Multidimensional approach to integration requires several related initiativesrequires several related initiatives

Strengthening capital marketsStrengthening capital marketsStrengthening capital marketsStrengthening capital marketsBuilding infrastructuresBuilding infrastructuresMinimizing risksMinimizing risksMinimizing risksMinimizing risksRemoving impedimentsRemoving impedimentsHarmonizing rules and practicesHarmonizing rules and practicesg pg p

Regional cooperation required all these Regional cooperation required all these dimensionsdimensions

1717

11 St th i C it l M k tSt th i C it l M k t11 Strengthening Capital MarketsStrengthening Capital Markets

Developing institutional investors, especially Developing institutional investors, especially pension fundspension fundspp

Strengthening corporate governanceStrengthening corporate governanceg g p gg g p g

Improving the transparency and consistency of Improving the transparency and consistency of p g p y yp g p y yfinancial statements.financial statements.

1818

2 Building Regional Infrastructures2 Building Regional Infrastructures

Enhance the depth and liquidity of capitalEnhance the depth and liquidity of capitalEnhance the depth and liquidity of capital Enhance the depth and liquidity of capital marketsmarkets

Establish links between national clearing and Establish links between national clearing and payments systemspayments systemsp y yp y y

Create regional credit rating agencies and Create regional credit rating agencies and g g gg g gbenchmarks.benchmarks.

1919

3 Minimizing Risks3 Minimizing Risks3 Minimizing Risks3 Minimizing Risks

Risks of Market integration eapecially as institutions Risks of Market integration eapecially as institutions and individual invest in new markets and instruments.and individual invest in new markets and instruments.

Potential for currency mismatchesPotential for currency mismatchesRisks arising from country exposures,Risks arising from country exposures,Risk from institutions that are increasingly active in a variety of Risk from institutions that are increasingly active in a variety of g y yg y yfinancial sectors and geographical regionsfinancial sectors and geographical regions

A strong framework for prudential regulation and A strong framework for prudential regulation and supervision is necessary to ensure that riskd arising supervision is necessary to ensure that riskd arising supe s o s ecessa y o e su e a s d a s gsupe s o s ecessa y o e su e a s d a s gfrom integration are being assesses and managed from integration are being assesses and managed well.well.

Move towards riskMove towards risk--based supervision andbased supervision andMove towards riskMove towards risk based supervision, andbased supervision, andChanges in prudential regulation and supervisory oversight to Changes in prudential regulation and supervisory oversight to address crossaddress cross-- border activitiesborder activities

2020

4 R i I di t4 R i I di t4 Removing Impediments4 Removing Impediments

Legal barriers remainLegal barriers remainLegal barriers remainLegal barriers remainRemoval of capital and exchange controls could increase Removal of capital and exchange controls could increase crosscross--border flows and competition and enable investors and border flows and competition and enable investors and firms to tap regional markets to find the lowest cost of funding firms to tap regional markets to find the lowest cost of funding and highest riskand highest risk--adjusted return.adjusted return.

Limits on the level of ownership and associated rightsLimits on the level of ownership and associated rights

In many countries the existing prudential requirements biasesIn many countries the existing prudential requirements biasesIn many countries, the existing prudential requirements biases In many countries, the existing prudential requirements biases investment toward domestics assets (e.g. restrictions on investment toward domestics assets (e.g. restrictions on foreign stock ownership and investment of mutual funds/unit foreign stock ownership and investment of mutual funds/unit trusts)trusts)trusts)trusts)

1212

5 H i i R l d P ti5 H i i R l d P ti5 Harmonizing Rules and Practices5 Harmonizing Rules and Practices

Address major differences in laws, Address major differences in laws, regulations and tax treatments that stillregulations and tax treatments that stillregulations, and tax treatments that still regulations, and tax treatments that still prevent investors from building panprevent investors from building pan--ECOWS portfoliosECOWS portfoliosECOWS portfoliosECOWS portfoliosEmphasize convergence with globally Emphasize convergence with globally accepted standards and best practices to accepted standards and best practices to facilitate easier global integration.facilitate easier global integration.

13131313

Approaches to Integration of Approaches to Integration of C it l M k tC it l M k tCapital MarketsCapital Markets

Regional integration of capital markets could occur at the Regional integration of capital markets could occur at the operational or regulatory level.operational or regulatory level.

Operational integration can take various forms:Operational integration can take various forms:Existing markets maintaining their status as distinct national marketsExisting markets maintaining their status as distinct national marketsExisting markets maintaining their status as distinct national markets Existing markets maintaining their status as distinct national markets but with various levels of interaction between marketsbut with various levels of interaction between marketsAdoption of common market infrastructureAdoption of common market infrastructureCreation of a single market to replace existing national marketsCreation of a single market to replace existing national marketsCreation of a single market to replace existing national marketsCreation of a single market to replace existing national markets

Regulatory integration involves harmonization of rules andRegulatory integration involves harmonization of rules andRegulatory integration involves harmonization of rules and Regulatory integration involves harmonization of rules and standards. In extreme cases, it also involves adoption of a standards. In extreme cases, it also involves adoption of a single set of rules to replace existing domestic rulessingle set of rules to replace existing domestic rules

2323

Conditions for Integration of Conditions for Integration of R i l C it l M k tR i l C it l M k tRegional Capital MarketsRegional Capital Markets

Successful integration of capital markets requires a range Successful integration of capital markets requires a range of necessary conditions:of necessary conditions:of necessary conditions:of necessary conditions:

Effective legal, regulatory and supervisory mechanisms and Effective legal, regulatory and supervisory mechanisms and g , g y p yg , g y p ystandards at the national level and subsequently, the harmonization standards at the national level and subsequently, the harmonization of these policies and frameworks;of these policies and frameworks;

Strong regional institutions;Strong regional institutions;

Supporting infrastructure and access to ICTs;Supporting infrastructure and access to ICTs;pp gpp g

Macroeconomic stability;Macroeconomic stability;

Adequate capacity at all levels; Adequate capacity at all levels;

Investor confidence and political willInvestor confidence and political will2424

Investor confidence and political willInvestor confidence and political will

Wh ?Wh ?Where are we now?Where are we now?

African regional Economic communities (RECs) are numerousAfrican regional Economic communities (RECs) are numerousECOWASECOWAS

UEMOAUEMOAWAMZWAMZ

CEMACCEMACEACEACSADCSADCCOMESACOMESAARAB MAGHREB UNIONARAB MAGHREB UNIONARAB MAGHREB UNIONARAB MAGHREB UNION

Some are overlapping e.g. SADC/EAC/COMESASome are overlapping e.g. SADC/EAC/COMESANot all RECs have an active capital market integration programNot all RECs have an active capital market integration programEstablishment of the Establishment of the Bourse Regional de Bourse Regional de ValeursValeurs MobilieresMobilieres(BRVM) in Abidjan, Cote dIvoire, for French(BRVM) in Abidjan, Cote dIvoire, for French--Speaking West Speaking West African Countries.African Countries.Cote dIvorie Stock Exchange was established in 1976Cote dIvorie Stock Exchange was established in 1976

UEMOA/BRVM Framework UEMOA/BRVM Framework UEMOA/BRVM Framework UEMOA/BRVM Framework U iU i E iE i tt M t iM t i O tO t Af i iAf i iUnion Union EconomiuqeEconomiuqe et et MonetaireMonetaire OuestOuest AfricaineAfricaine(UEMOA)established in 1973 and made up of (UEMOA)established in 1973 and made up of eigtheigth countries countries (Benin, Burkina Faso, Cote dIvoire, Guinea Bissau, Mali, Niger, (Benin, Burkina Faso, Cote dIvoire, Guinea Bissau, Mali, Niger, Senegal, and Togo).Senegal, and Togo).Senegal, and Togo).Senegal, and Togo).BRVM opened in 1998(World first Regional Exchange)BRVM opened in 1998(World first Regional Exchange)

Underpinned by UEMOA Treaty signed 1973Underpinned by UEMOA Treaty signed 1973Common central bank BCEAOCommon central bank BCEAOCommon central bank BCEAOCommon central bank BCEAOCommon regulatorCommon regulator--Regional Council for Public savings and financial Regional Council for Public savings and financial marketsmarketsCommon Business Law (OHADA)Common Business Law (OHADA)Common Insurance regulatorCommon Insurance regulator

BVRM has branches in each UEMOA country and its headquarters BVRM has branches in each UEMOA country and its headquarters in Abidjan, Cote DIvoire. Although the course is majority owned by in Abidjan, Cote DIvoire. Although the course is majority owned by th i t t th b t t 13 4% f th it lth i t t th b t t 13 4% f th it lthe private sector, the member states own 13.4% of the capital the private sector, the member states own 13.4% of the capital

UEMOA/BRVM UEMOA/BRVM Framework(Cont..)Framework(Cont..)

Limited Liability Company owned by:Limited Liability Company owned by:Governments of UEMOA States (13%)Governments of UEMOA States (13%)SubSub--regional institutions (e g Westregional institutions (e g WestSubSub--regional institutions (e.g. West regional institutions (e.g. West African Development Bank) (23%)African Development Bank) (23%)Chambers of Commerce of UEMOA Chambers of Commerce of UEMOA (11%)(11%)( )( )Brokerage Firms (28%)Brokerage Firms (28%)P i t b i (25%)P i t b i (25%)Private businessmen (25%)Private businessmen (25%)

Institutional Basis & TradingInstitutional Basis & TradingConseilConseil Regional (Regulatory Agency)Regional (Regulatory Agency)Central Depository and Settlement BankCentral Depository and Settlement BankBrokerage Companies (Brokerage Companies (SocietedeSocietede GestionetGestionetdI t di tidI t di ti ))dIntermediationdIntermediation))TradingTrading

B d ll d i d d t itt dB d ll d i d d t itt dBuy and sell orders are received and transmitted Buy and sell orders are received and transmitted by satellite to head office in Abidjanby satellite to head office in AbidjanTrading occurs 3 times a week with one daily priceTrading occurs 3 times a week with one daily priceTrading occurs 3 times a week with one daily price Trading occurs 3 times a week with one daily price

fixingfixingTrading results available online in allTrading results available online in allTrading results available online in all Trading results available online in all

UEMOAcountriesUEMOAcountries

UEMOA/BRVM UEMOA/BRVM Framework(Cont..)Framework(Cont..)

Computerized with satellite links, which allow Computerized with satellite links, which allow brokers to transmit orders from any of thebrokers to transmit orders from any of thebrokers to transmit orders from any of the brokers to transmit orders from any of the member countries to the central site in member countries to the central site in Abidjan to check and interact with the orderAbidjan to check and interact with the orderAbidjan,to check and interact with the order Abidjan,to check and interact with the order book and to see information about the market book and to see information about the market and the central depositoryand the central depositoryand the central depository.and the central depository.15 brokerage firms15 brokerage firmsTrades are cleared and settled at the Trades are cleared and settled at the Depositaire Central/Banque de Reglement SA.Depositaire Central/Banque de Reglement SA.

West African Monetary Zone West African Monetary Zone yy(WAMZ)(WAMZ)

Ghana, Nigeria, Sierra Leone, Gambia and Ghana, Nigeria, Sierra Leone, Gambia and GuineaGuineaGuineaGuineaTwo stock exchangesTwo stock exchangesNo formal regional cooperation except MOUNo formal regional cooperation except MOUNo formal regional cooperation except MOU No formal regional cooperation except MOU between stock exchanges and SECs of Ghana between stock exchanges and SECs of Ghana and Nigeriaand Nigeriaand Nigeriaand NigeriaHeads of sate directed a cross listing of Heads of sate directed a cross listing of securities as part of implementation WAMZsecurities as part of implementation WAMZsecurities as part of implementation WAMZ securities as part of implementation WAMZ monetary union but no progress has been monetary union but no progress has been mademadeGhana Stock Exchange was established in Ghana Stock Exchange was established in 1990 while that of Nigeria was in 19601990 while that of Nigeria was in 1960

What Progress has been What Progress has been ggMade ?Made ?

UEMOA/BRVM single market comes closest to UEMOA/BRVM single market comes closest to integrated regional market because ofintegrated regional market because ofintegrated regional market because ofintegrated regional market because of

Convergence on preconditions (macroeconomic, Convergence on preconditions (macroeconomic, judicial auditing and accounting etc)judicial auditing and accounting etc)judicial, auditing and accounting, etc)judicial, auditing and accounting, etc)Common regulatory frameworkCommon regulatory framework

Si l k t d t t ll b fitSi l k t d t t ll b fitSingle market does not guarantee all benefits Single market does not guarantee all benefits of integration (e.g. liquidity)of integration (e.g. liquidity)Mixed results in other regional economic Mixed results in other regional economic communities (SADC, EAC, COMESA, WAMZ)communities (SADC, EAC, COMESA, WAMZ)

Possible Reasons for Slow Possible Reasons for Slow ProgressProgress

Preoccupation with harmonizationPreoccupation with harmonizationRegional efforts have overemphasizedRegional efforts have overemphasizedRegional efforts have overemphasized Regional efforts have overemphasized harmonization while elimination of impediments harmonization while elimination of impediments to capital flows has been largely overlookedto capital flows has been largely overlookedto capital flows has been largely overlookedto capital flows has been largely overlookedputting the cart before the horse?putting the cart before the horse?Harmonization is not necessary for financialHarmonization is not necessary for financialHarmonization is not necessary for financial Harmonization is not necessary for financial market integrationmarket integrationPrinciple of Mutual Recognition and HomePrinciple of Mutual Recognition and HomePrinciple of Mutual Recognition and Home Principle of Mutual Recognition and Home Country Control is importantCountry Control is important

Lesson from EU Lesson from EU Harmonization Model?Harmonization Model?

Basis of EUs integration is that minimal harmonization of rules and Basis of EUs integration is that minimal harmonization of rules and mutual recognition, should lead to gradual convergence over timemutual recognition, should lead to gradual convergence over timeFinancial Services Action Plan (1999) implemented through a series ofFinancial Services Action Plan (1999) implemented through a series ofFinancial Services Action Plan (1999) implemented through a series of Financial Services Action Plan (1999) implemented through a series of directives (agreements) adopted one at time after long period of directives (agreements) adopted one at time after long period of negotiationnegotiation

Regulation in International StandardsRegulation in International StandardsFinancial Conglomerates DirectiveFinancial Conglomerates DirectiveMarket Abuse DirectiveMarket Abuse DirectivePension Abuse DirectivePension Abuse DirectiveM k t i Fi i l I t t Di ti ( ff ti N b 2007)M k t i Fi i l I t t Di ti ( ff ti N b 2007)Markets in Financial Instruments Directive (effective November 2007)Markets in Financial Instruments Directive (effective November 2007)Under PreparationUnder Preparation

Prospectus DirectiveProspectus DirectiveInvestment Services DirectiveInvestment Services DirectiveInvestment Services DirectiveInvestment Services DirectiveTransparency DirectiveTransparency DirectiveTakeover DirectiveTakeover Directive

Principle of home country supervisionPrinciple of home country supervisionPrinciple of home country supervisionPrinciple of home country supervisionSingle passport allows financial institutions to do business across EU Single passport allows financial institutions to do business across EU armed only with the approval of their home authoritiesarmed only with the approval of their home authorities

Possibilities of Going Possibilities of Going ggForward in ECOWASForward in ECOWAS

Make haste slowlyMake haste slowlyKeep multidimensional integration needs in focus and Keep multidimensional integration needs in focus and p gp gavoid obsession with harmonizationavoid obsession with harmonizationAgree on common principles setting minimal standards Agree on common principles setting minimal standards for mutual recognitionfor mutual recognitionfor mutual recognitionfor mutual recognitionAgree on the key national rules which must be Agree on the key national rules which must be removed removed Agree on mutual recognition o all regional regimesAgree on mutual recognition o all regional regimesCoordination of supervision to facilitates the resolution Coordination of supervision to facilitates the resolution of differences in application and interpretationof differences in application and interpretationof differences in application and interpretationof differences in application and interpretationRemove discrimination against non resident investors Remove discrimination against non resident investors and issuersand issuers

C l iC l iConclusionConclusion

Capital Market Integration not an end in Capital Market Integration not an end in it lf b t t f h iit lf b t t f h iitself but part of comprehensive itself but part of comprehensive economic Integrationeconomic IntegrationNot necessary to achieve complete Not necessary to achieve complete harmonization of rulesharmonization of rulesharmonization of rulesharmonization of rulesCrossCross--border alliances with cross listings border alliances with cross listings is fastest routeis fastest routeA regional stock exchange is notA regional stock exchange is notA regional stock exchange is not A regional stock exchange is not necessary to achieve integrationnecessary to achieve integration