Uganda Capital Markets Authority approvs a second securities exchange – ALTX
The Capital Markets Authority recently approved a second securities exchange – ALTX – that is expected to increase competition in Uganda’s stock market. Prosper’s FARIDAH KULABAKO, caught up with CMA’s chief executive officer, Mr Keith Kalyegira, who expounded on the matter.
Tell me about ALTX Uganda exchange you approved recently. The ALTX is the second securities exchange that was approved by the board of directors of Capital Markets Authority. But it still has to fulfil a few other statutory requirements, including demonstrating sufficient capitalisation with at least three brokers. It intends to start operations in the fourth quarter of this year after fulfilling the remaining requirements.
What do you mean when you say ALTX must demonstrate sufficient capitalisation? ALTX should demonstrate that it has a minimum of one and a half to two years working capital before it can be given a licence to start operating. We do not want a situation where they start operating and after a short time, they cannot continue.
Word going around is that the second Exchange is going to replace the Uganda Securities Exchange. What is your take on this? That is false. The two exchanges will operate concurrently and they will be dealing in different products. USE deals in securities and bonds while ALTX will deal in other asset classes including hosting order books of companies listed on other exchanges to give local and foreign investors access to international markets and also offer currencies, commodity and interest rate derivatives, among others. These are unique products which we did not have in the market. Commodity derivatives will help guarantee prices for agricultural products to be produced in the future. This will help create stability for future prices to guarantee production. This means if you fix a price of a particular commodity for the future, one will be assured of selling at that very price even if prices fall. The only downside is that if prices appreciate, you lose because you have a fixed price. So, the two exchanges will operate alongside each other.
Did Uganda need a second exchange yet USE is yet to generate good volumes? We needed to grow the number of investors on the stock market from the current 40,000 to at least 400,000 and we had two options; either to wait for USE to grow the numbers over time or license another player to increase the numbers faster. That is why we settled for the second option. The law is not very descriptive on denying licences to a second exchange. So, if someone expresses interest and fulfils the requirements, we do not have strong reasons not to give them a licence. Although competition is healthy, the proprietors of the new exchange do not see themselves as competitors with the USE because they will bring in different products such as hosting order books of companies listed on other exchanges and derivatives.
The Alternative Investment Market Segment (AIMs) and the Growth Enterprise Market Segment (GEMS) failed to attract a single listing. What makes you believe that ALTX will succeed? The AIMS and GEMS were market segments of USE that were created to help spur small companies to raise capital from the stock market. But ALTX is an independent exchange which has promised to be efficient since they will be operating on an electronic platform from the start. This is good for the market because it will make it easy to trade. CMA welcomes anything that can help accelerate the electronic form of trading. We also need to promote the GEMS by looking into issues like fees and the minimum size of enterprises because it costs money to take a company public. We do not want the cost of taking a company public to exceed 5 per cent of the total size of the money you seek to raise.
Can stock brokers currently operating on USE offer services on the new exchange? Any stock broker who is not an owner (founder member) of the USE will have a chance to operate on both exchanges if they wish because the two exchanges will be offering different products. Operating on both exchanges will also enable a stock broker to give investors access to companies listed in Uganda and those listed on other exchanges that are being hosted by ALTX.
Can a local company listed on USE also list on ALTX? Yes. If a company lists on both exchanges, it will be exposed to other investors outside Uganda that the ALTX has access to yet stock brokers operating on the USE have no access to. So we are looking at the new exchange as a platform that will help increase liquidity in the market.
What impact is the second exchange expected to have on capital markets? The second exchange is also expected to attract shares of other stock exchanges quoted in Uganda and available for other investors from the region to invest in. It will also bring about more investment options. Although the total size of the market is currently $1.2 billion (about Shs3 trillion), we expect it to grow to about Shs10 trillion and while the amount of shares traded on USE stands at about $300 million (about Shs750 billion), we hope that it will grow by at least three times. The second exchange is also expected to increase awareness of the market by raising the level of research, which is essential as it helps investors to make informed investment decisions. So, bringing additional brokers will help increase the level of awareness of investment in equities and increase market participation. The total level of contractual savings in Uganda is currently about Shs4.5 trillion but with the pension reform discussions, it could go to about Shs14 trillion in six years.
What are your plans of growing Uganda’s capital markets in the next five years? CMA will soon launch a 10-year capital markets development master plan including rolling out a public awareness campaign to educate the public about capital markets. It will also make them realise the opportunities in investing in equities. Ugandans should see trading and investing in equities as a primary investment vehicle but not as a secondary one. We intend to reach at least 20,000 potential investors every year through about 400 speaking engagements next year.