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LuSE: ‘Marketplace’ for raising long-term capital

Having covered the origin and benefits of the stock exchange the other week, this week we continue to focus on Zambia’s first stock exchange, the Lusaka Stock Exchange (LuSE).  The LuSE is one of two exchanges licensed and supervised by the Securities and Exchange Commission (SEC), the other one being the Bonds and Derivatives Exchange (BaDEX) which we covered last week.
LuSE is a private not-for-profit company which  operates a securities exchange for dealing in shares, bonds, and other securities in accordance with the Securities Act No. 38 of 1993.  It was established in 1993 in Lusaka with technical and financial assistance from the International Finance Corporation (IFC) and the World Bank. LuSE opened for business on February 21, 1994.
The establishment of the exchange was in response to the Government’s broader economic reforms aimed at stimulating a dynamic private sector to be the primary engine for economic growth in Zambia. It was also motivated by the need to deepen financial and capital markets in support of the emerging private sector.
The LuSE is a ‘marketplace’ where companies go to raise long-term capital through the issue of securities (shares, bonds or debentures). Investors, both individual and institutional, buy these securities and the funds raised are typically used for expansion or new product development.
The raising of capital in exchange for securities takes place in what is called the primary market, which is where companies issue shares for the first time. A company needs to have registered its securities with SEC for it to be able to sell or issue its shares to the public through the LuSE.
The LuSE is also a platform for secondary trading. This is where initial holders of the securities can buy more and/or sell them at prices determined by the market. The collective efforts of buyers and sellers interacting, is what is referred to as the market setting the price.
It does not set the prices but ensures that trading activity is done in an orderly and transparent manner. Investors gain from this process through the price appreciation on their shareholdings resulting from growth, performance and activity of the companies they have invested in over time.
The objectives of setting up the LuSE are:
• To provide an efficient, fair, orderly and transparent market for secondary trading in shares and other marketable securities
• To promote wealth creation through wide ownership of shares by Zambian citizens
• To facilitate the divestiture of the Government’s interest in state owned enterprises as part of the economic reforms to liberalise the Zambian economy
• To encourage the international community to invest in Zambian business and industry and consequently, increasing the pool of money available to business
• To provide a source of relatively cheaper long-term capital for existing and new companies
The LuSE market is also segmented into listed and quoted. The listed board has listing requirements and rules which an issuer is expected to meet before being admitted on the board. This listed board is split into two tiers; main board for larger companies and the Alternative Market (AltM) for smaller growth companies.
The AltM was officially launched in April 2015. It is designed to facilitate easier access to the LuSE by smaller growth companies and has reduced requirements while maintaining the high standards expected on any stock exchange. The quoted market is a market where all companies which register their securities with SEC start from as they work their way to listing. As at June 1, 2015, the LuSE had 22 listed and 11 quoted companies. The LuSE, which currently has a market size (called market capitalisation) of just over K65 billion, operates a unified market: the equity (shares) and bond (debt) market.
To access the LuSE, whether as a (potential) issuer or (potential) investor, you will be required to appoint a broker. LuSE currently has seven brokers, namely;African Alliance, Equity Capital Resources, Finance Securities, Intermarket Securities, Madison Asset Management Company, Pangaea Securities and Stockbrokers Zambia.
Being a modern stock exchange, LuSE adheres to the most current international standards and practices, such as the use of a central share depository system (CSD); Trade-for-trade netting clearing and settlement process; and rolling settlement, three days after the trade. It uses an automated trading system.
The availability of these systems provides for fast execution of transactions as brokers are able to submit orders and trade electronically. The systems are in the process of being upgraded to introduce more functionality and efficiency. A trade takes place when an order to buy and sell match. This happens during the LuSE trading hours which start at mid-morning and close at 14:00 hours.
At close of trading, reports are generated for the brokers and the market stakeholders. Traded transactions are, therefore, passed on to the CSD which runs an electronic platform that provides book-based clearing, settlement and depository functionalities for the processing of the securities transactions.
Further, when securities are issued and allotted to subscribers, the CSD registers their nature and ownership. When the market closes at the end of trading hours, the clearing of trades commences. The process of clearing encompasses the various activities that prepare a trade for settlement. Each member broker uses the Initial Settlement Report to verify details of their trades and report to the LuSE any errors for correction. This must be achieved by 15:00 hours of each trading day, otherwise the trade must settle and details of the trade cannot be amended.
The public can subscribe to various reports of the LuSE which range from daily, weekly, monthly and annual reports. Institutions such as Bloomberg and Reuters which disseminate financial information globally subscribe to the LuSE system live feed.
Information on closing prices can be obtained from the LuSE website, newspaper reports and on the main ZNBC TV news as the prices scroll on the screen. Investors are encouraged to also contact their brokers for investment decisions.
For more information, please contact us on or +260 211 227 012