Several challenges facing African exchanges: – Lack of viable investment opportunities – generally, demand far outweighs the supply – Securities in issue are tightly held and the secondary – exchange mediated – trade is very thin and inefficient – Low market liquidity – Regulatory and system challenges ETFs would in principle provide retail and institutional investors with an easy, convenient and cost effective access to various assets, diversified portfolios of assets and whole markets.
How can ETFs help in the development of African capital markets? Why started with NewGold?
The best first step instead was to start with ETFs on highly liquid assets that was unavailable but attractive to the investors – such as NewGold. The expected immediate benefits to the market was that:
it would help strengthen the regulatory / control / operational framework by implementing the proven international regulatory standards;
– it would provide immediate liquidity to the market and help satisfy the need of investors for liquid securities
– it would provide investors with an access to previously unavailable asset classes, thus improving diversification opportunities and reducing investment risk.
Once these products are well established and the investors become better educated about and more comfortable with investing in general and the investing in passive investment products such as ETFs in particular, then it becomes feasible to expand the product offering by creating ETFs tracking more liquid national / regional / international equity, fixed income, etc. indices and offering those to the investors.
Challenges and experiences 30 | BETA Strategies 2014 To successfully list an ETF on the NSE, all the stakeholders like NSE, Absa Capital, other regulators and market participants / brokers had to solve several problems – Regulatory Listing requirements for ETFs Registration, reporting Issues affecting collective investment schemes Status of the market maker – System / trading Efficient market making – process, interface, systems, hedging Settlement (different timing standards) Efficient security transfer / fungibility – Marketing and education – retail and institutional