The Rwanda Stock Exchange (RSE) is eagerly eyeing the implementation of a unified electronic settlement system for East African Community bourses to increase efficiency and shore up trading on its cross-listed shares, among other positives.

Pierre-Celestin Rwabukumba, the RSE chief executive, told Doing Business that the Capital Market’s Infrastructure (CMI), a technology platform designed to integrate regional countries’ capital markets by linking their respective stock exchanges and central securities depositories, will create one market place without necessarily breaking up existing regional infrastructure.

By and large, advantages of the project promoted under the EAC Common Market Protocol are to provide a larger pool of financial securities to investors and a larger capital raising base for companies and governments.

Pierre-Célestin Rwabukumba the Chief Executive Officer of Rwanda Stock Exchange speaks during a forum on August 4. Photo: Dan Nsengiyumva.

Rwabukumba said: "It’s a project that we have been working on for many years now as the East African Community. It is meant to bring together, or link, all existing stock exchanges in the region. That means Rwanda, Uganda, Tanzania, Kenya, Burundi and any other EAC kind of stock exchange which will come along.

"What it means is that people will be able to trade across markets directly. It will permit cross border investments. It will allow companies to cross-list.”

The CMI will allow investors to buy and sell shares of firms in EAC countries without moving from country to country. It will even allow companies which are not cross listed to trade. For example, he explained, a customer in Rwanda who wants to buy shares can be able to buy shares using their local broker because their local broker will be linked to the Rwanda Stock Exchange and can also view other markets in the region.

"We have arrangements across the region and capital market authorities and all members who are playing in our markets will be able to serve their clients who want to invest across [regional] markets. So, basically, what the implementation means is that we will have one market place without necessarily collapsing the entire infrastructure because people will be able to route orders from markets to the others.”

Rwanda started its bourse in 2011.

Lately, the CMI platform is used by the markets of Burundi, Rwanda, Tanzania, and Uganda.

The cross-border trading of financial securities was projected to start in the first quarter of 2022.

In 2022, the EAC planned to carry out a feasibility study for Kenya to rejoin the project, and a needs assessment in South Sudan.

In 2015, Kenya pulled out of the project reportedly over alleged software procurement irregularities. The project was initially designed with it in mind since the country has the largest volumes and transactions in the region. Sources say Kenya is now in the process of joining.

While the Dar es Salaam Stock Exchange and Uganda Securities Exchange are linked through the platform for cross border trading of financial securities, the RSE and the Burundi Securities Exchange only used the platform for domestic trading of financial securities.

According to Eng. Daniel Murenzi, Principal IT Officer at the EAC Headquarters in Arusha, Tanzania, the wish now is to launch the CPI during the next Council of Ministers meeting. The next Council of Ministers meeting, if all goes as per the schedule in the EAC calendar, will be held in November.

Murenzi said: "The primary role of this CMI is to raise long-term funds for our EAC partner states, banks, and corporations while providing a regional platform for the trading of securities.”

"The regional CMI gives consumers access to wider investment opportunities, and they can benefit from improved returns over a longer period, and from reduced financing costs. We intend to bring on board all EAC partner states to benefit from this regional platform.”

Many benefits

John Bosco Kalisa, CEO of the East African Business Council (EABC), said this is a commendable move as it will attract more rational investors who have been keen and interested in the capital markets in East Africa.

Rwabukumba, who is also Chairperson of the East Africa Securities Exchange Association (EASEA), emphasized that the CMI will bring many benefits.

"There will be many benefits. It increases efficiency. Typically, currently, if you want to do transactions across markets, there are basically manual processes which are not efficient and, therefore, not good for business,” he said.

"So, people will be able to transact electronically and transfer shares as they wish across the markets and companies will be able to have a wider pool of investors directly.”

A few months ago, the RSE launched its own trading in Rwanda.

"We did a soft launch for our trading platform and we are waiting for the final launch with the rest of the regional markets. Rwanda was not automated before. Now, it is automated,” Rwabukumba said.

"So, we needed to have full automation so that we can be able to link to the other markets across the region,” he added, signaling optimism that the Nairobi Securities Exchange (NSE), a leading African Exchange in Kenya, which had backed out was in the process of returning.

Direct market access

Rwabukumba said the system brings "direct access to the market,” electronically.

He said: "We are going digital and people are no longer using manual processes and that will have more people accessing the market place and have increased efficiency.

"We will also have what we call direct market access, or DMA. Even people in remote places will access the market, something that was not possible in the past because one needed to be here physically. People will even be able to open accounts online, and so on.”

And, Rwabukumba said, there is another project they are working on to allow retail investors and the likes, to the market using their phones.

"We are optimistic about it because most markets use these gadgets and our young people nowadays don’t want to bother with the old systems. They like their gadgets. I think this will pave the way for all the other processes that we want to do.”

Despite the optimism inspired by the new project, hindrances to trading of cross-listed stocks including a lack of investor awareness, lack of activity in cross-listed firms’ shares, divergent trading regulations among partner states, and exchange rate risks, continue to affect the market.

Since the capital market integration is still in its infancy phase, more work is being done – including in areas such as review of the legal and regulatory frameworks of the EAC capital markets; assessment of interoperability of cross border mobile financial services; and capacity building programs for partner states in capital markets and cyber security.

Kalisa admitted that: "The challenges have been high risks associated with exchange rate losses as well as poor infrastructure that inhibited the growth of stock exchange in East Africa.”

"As EABC we applaud this initiative and support it fully.”