- Introduces corporate retail bonds from Exim Banks
- Laying out infrastructure for derivatives trading
- The commodity exchange set to come alive
As the investment and business sector got to a standstill in 2015, the capital markets side of the business was not an exception. Marred by a political uncertainty apprehensiveness, investors chose to jump fence and monitor the after-election results and political situation from the peripheral without risking their investment. This accounts for a low influx of capital in the country in the space of six months before the election and a month after. Only this last week of November, has the Dar es Salaam Stock Exchange (DSE) reported a steady rise in the trading by quoting a 57 per cent rise in turnover to 4.29bn/- compared to 2.74bn/- of the preceding period, with the Tanzania Breweries Ltd (TBL) and CRDB Bank emerging to be the top traded equities.
Exim Bank Retail Bonds
These were officially announced by the Capital Markets and Securities Authority on Friday the 20th November, 2015. The CMSA has approved the trading of six year exchange traded retail bonds worth Ten Billion Tanzanian Shillings (TZS 10,000,000,000/=). Heralded as the first exchange traded retail bond, the issuer has been given a green light to retain up to 50% of the amount offered in the event the offer is oversubscribed.
With this green shoe option, Exim Bank is authorized to issue more bonds than had originally planned. In legal terms this is referred to as over-allotment option. It is a robust opportunity for small investors to capitalize on bonds of lower denominations, expand their involvement in the market with tradable bonds and other investment ventures. This product like other shares being traded in the market, will also be traded and offered to investors through the mobile phone technology recently introduced by the Dar es Salaam Stock Exchange (DSE).
Trade in Derivatives
In simple terms, a derivative is a security with a price that is derived from one or more underlying assets. The derivative itself becomes a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset.
The current infrastructure harbours the derivatives to be traded over the counter (OTC) hence restrictive accessibility by investors. Furthermore, currencies denominations of derivatives as well as license for OTC dealing has been closely regulated. The current regulations in place, restricts licensed banks and financial institutions from entering into swaps with residents that are less than seven days duration and those of less than three months duration when dealing with non-residents. In relation to the close regulation by the authorities, Banks and financial institutions are required to report daily all derivative dealings to the Bank of Tanzania.
Towards the need to improve the derivatives exchange, this November, the CMSA commissioned a stakeholders training and capacity building exercise. Subsequent to that, our Breakthrough Attorneys Capital Markets bench informs us that the DSE has issued a statement informing the investor community that it will soon incorporate derivatives as tradable products in the DSE. This is expected as early as December, 2015.
The Commodity Exchange Market
Commodity exchange is regulated by the Commodity Exchange Act 2015 in Tanzania. Commodity exchange (Hereinafter “the exchange”) is a system that provides for a centralized market place where commodity producers can sell their commodities to those (buyers) that need them for manufacturing or consumption. Commodity is defined by the Act to mean agricultural, livestock, fishery, forestry, mining or energy goods, or any product that is manufactured or processed from such goods also financial index or an index, right or interest in any such commodity.
Apart from the exchange bringing together sellers and buyers, it acts as a platform for trade commodity-linked contracts whose foundation is based on adherence to laws that are enacted to govern as well as keeping of records of the transaction and being bound by the disciplinary rules of exchange. So ultimately, commodity exchange is a platform that allows buyers and sellers to meet conveniently. From the price assessment and control angle, the commodity exchange can be seen as an efficient price discovery system that provides price transparency and reduced transaction costs. For more on commodity exchange essence click here.
All the above products, as has been highlighted in the opening paragraphs, are introduced at a moment that both institutional and regulatory frameworks are being bolstered to match up the investment densities incoming in Tanzania. While not long ago the CMSA removed the restrictions on foreign investors from buying more than 60% of securities in listed companies in the DSE, this new range of products to be traded at the exchange will only work to strengthen the market and economy.
Further, our team is aware that the technological improvement in trading, be it subscribing, opting, viewing and or selling, via mobile applications, has simplified and readily hastened the process of trading by a large margin.
With the much anticipated general infrastructural reforms in the sector and regulatory authorities, the capital market sector in Tanzania seemingly is only bound to get better and more lucrative than ever before. Our capital markets and investment team believes that with the recent reincarnation of privatization of some of the major listed companies (TBL and TCC) by the Government of Tanzania (GoT) offloading its shares in the two companies worth Tanzania Shillings Two Hundred and Twelve Billions, the market is poised to become quite engaging, speedy and rewarding to the stakeholders involved.
By, Breakthrough Attorneys; Capital Markets Dept.
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Website: Capital Markets & Securities