• Securities exchange to begin in 2022

On its meeting on Thursday June 10, the Board of Directors of National Bank of Ethiopia (NBE) issued a monetary policy operation directive to formalize and modernize the primary market under Open Market Operations (OMO) and Standing Facilities (SF).
The Ethiopian Capital Market Authority (ECMA) is also expected to become operational before the end of 2021 to pave the way for the highly anticipated securities exchange that will be realized in 2022.
Following the endorsement of the ‘capital market proclamation no. 1248/2021’ at the parliament 14th session on Thursday June 10, the formal establishing process of the ECMA is on the way.
“We had been under preparation informally but since the ratification of the proclamation happened our work is now officially on the process for the formation of required facility,” Melese Minale, Senior Macroeconomic Advisor at NBE and one of the major players on the process for the development of the capital market proclamation and related operations, said.
Melese told Capital that the implementation process has already commenced and project team is in the formation, while partners have also supported the process for the establishment of ECMA.
Eyob Tekalgn, State Minister of Finance and one of the leaders on the formation of the new market, told Capital that it is looking for required technologies to see the authority in the coming Ethiopian year.
Meanwhile, there is guidance on the designing of the exchange market which is mainly expected to make the private sector a major actor in the upcoming work.
“On the operational process of the market, currently, we have started engagement with experienced consulting firms that is fired up with the support of IFC,” he explained.
NBE is also calling experts on the formation of project team for the establishment of the first in kind authority.
“The government has shown its intention for the formation of the authority due to that we are tirelessly working to establish ECMA,” Melese says and added that the authority is expected to be real in the next six months time.
According to the proclamation, the Director General of the upcoming authority will be assigned by the Prime Minister. It is part of the formation process. The ECMA shall be accountable to the Prime Minister too.
“Definitely the Ethiopian Securities Exchange (ESE) will not happen by the end of this year. Starting from designing of the market there are several technical and practical processes that may involve different stakeholders. Several entities like listing companies and others should be also operational to embark the secondary market,” Senior Macroeconomic Advisor says, “due to that it would be challenging to see the ESE in the coming up to one year time but it may have life by the end of 2022.”
So far with the support of Financial Sector Deepening Africa (FSD Africa), a UK government organization, local experts have taken training for the capital market and the second round would be undertaken soon.
The ECMA may have a board that comprised seven members, consisting of ECMA Director General, Governor of NBE, and the Director of Accounting and Audit Board of Ethiopia as permanent ex-officio members of the board and four others by qualification.
In related with financial market strategy, which introduced about three years ago for modernizing the sector market up to the establishment of capital market, the Board of Directors of NBE has ratified a directive for monetary policy operation on its meeting on Thursday, which was the same day of the enactment of the capital market proclamation.
“Meanwhile, NBE’s directive, it is not for the stock market but they are related,” Melese explains, adding, “usually for the liquidity inception of securities exchange the banking system is crucial. So that developing the money market is very important to mush-rooming the securities exchange.”
Eyob also said that the directive for the primary market corroborates to see feasible capital market. He told Capital that the NBE board that he is also a member and chaired by Girma Birru, is issuing the directive to expand the primary market on modern arraignment.
The financial market strategy has classified the money market, which is short term financing and, a capital market will be introduced in the next step as per the economic reform agenda.
Under the Home Grown Economic Reform Agenda, the first stage is developing the money market that is introduced by making competitive the treasury bills (T bills) on market based and now it will introduce the modern inter-bank money market, and use instruments of OMO to foster the sector.
Currently, banks are engaged on interbank money market. But experts said that is informal deposit placement between banks is not really efficient.
According to the Senior Macroeconomic Advisor, the major objective of the directive is to make the money market structural and solve problems that it currently faces.
To develop the interbank money market NBE has hired a consultancy firm based in the Netherlands, working on the area of capacity building including for banks, legal framework for secure financial transaction, market infrastructure such as Central Security Depository (CSD) and trading platforms and others.
The new directive for the OMO and SF, shall avail instruments to provide and absorb overnight liquidity at banks, and is under development and will be launched in the near future.
Introducing these instruments means NBE is trading with banks and when banks have marketable security instruments they shall trade it as using collateral with each-others.
As part of modernizing the money market NBE is also emplacing infrastructures and technologies.
The market infrastructure such as CSD will enable to register securities electronically at a central platform that allows interested trader to use it electronically.
“So far, currently, a bank that demands to borrow from NBE is required to come physically with collaterals like T bills or other physical certificates, which is inefficient. But if it is deposited at CSD any bank need not to come physically, while using the trading platform at the core banking system,” Melese recently told Capital.