CHRISTINE O ASABA, writes that intermediaries make the capital market vibrant, function smoothly and continuously

It has been realised that stock market needs to play a greater role in Rwanda’s financial system, as is the debate over moving funds "from savings to investments." Although it is not just a question of expanding the stock market’s volume, it is also raising the quality of that market. The issue of improving quality, however, should go beyond specific measures and be viewed as an important goal in and of itself. The quality of the market is determined by the suitability of the behaviour of its individual participants as well as the market infrastructure. It is important to have not only a trading system, but also to create a system for monitoring misconduct as well as a business continuity plan (BCP) to maintain quality during times of tension. Whether a market is good or bad depends on the level of awareness and capabilities of the individual participants more than anything else, and reform of the market must begin with the people rather than the government, and must be shouldered by the people. Regulations do nothing more than establish the minimum hurdle that market participants must clear, and each market participant must behave in accordance with a higher, self-imposed standards. We must not fall into the habit of relying on the government or bureaucratic patronage and opting only to tighten regulations every time there is a problem.

A market consists of sellers of products and buyers thereof. Obviously the securities market refers to investors i.e. wealth savers, who mobilise their savings and search for the capital seekers, that is, business, industry or government. The two constitute the remunerative source of investment thereof on the one hand, and on the other core elements of the securities/capital market.

The market may consist of large number of individual investors, household savers, professionals, agriculturists, etc who are able to a preserve, a part of their current earnings to build sizeable amounts and invest in securities. They form the class of capital providers or capital builders for the nation. On the other side the corporate entities engaged in industry, trade or other business ventures are the productive users and consequent seekers of very large amount of capital. It is the function of the capital market to transform and redirect the use of the savings of large number of individuals to productive channels to meet long term needs of capital for industry, trade and business. The capital/security market intermediaries serve as the bridge or necessary link between capital providers and capital seekers. They enable a smooth flow of investment funds from the supply to the demand points.

The individual savers are not organised. They can invest if they could secure the trust and confidence that the funds invested would be prudently employed and they could confidently expect to get a fair return/reward on their hard-earned savings. In short, in addition to a remunerative return on their savings, they look for other pre-requisites in making an investment decision. These are security of the funds entrusted and liquidity i.e. to get back their savings in times of their need. This is the function of organised capital market to regulate market forces to ensure fair dealings, to motivate savings on the part of the investors and to secure smooth flow of savings/capital from investors to capital seekers for productive needs. This supervisory and regulatory function in Rwanda is performed by Capital Markets Advisory Council (CMAC), the market regulator cum market developer.

Capital market intermediary

The role of intermediaries makes the market vibrant, and to function smoothly and continuously. Intermediaries possess professional expertise and play a promotional role in organising a perfect match between the supply and demand for capital in the market. All those, institutions or individuals, who help to bring the savers and seekers of capital and enable a regular flow of funds from supply to demand points are intermediaries. Thus a commercial bank, an insurance company, a mutual fund, stock exchange are as much intermediaries, as are brokers, sponsors, dealers, etc. All intermediaries are service providers and are an integral part of the capital market.

The Rwanda Capital market Regulator CMAC, regulates various intermediaries in the primary and secondary markets through its regulations for these intermediaries. CMAC has the responsibility to define the role of each of the intermediary, the eligibility criteria for granting registration, their functions and responsibilities and the code of conduct to which they are bound. These regulations also empower CMAC to inspect the functioning of these intermediaries and to collect fees from them and to impose penalties on erring entities. Generally the core functions of each one of the intermediaries operating in the primary and the secondary markets.

You may have to deal with some of the intermediaries as an investor. But it is more important for you to know about all intermediaries. The primary role of Rwanda Capital Market Advisory Council (CMAC) is to regulate and standardise the role of different intermediaries, by defining eligibility criteria for the registration of intermediaries and regulating operating systems and functional procedures. CMAC being a quasi-judicial body is endowed with penal powers to deal with violations of the code by anyone of the intermediaries registered with and functioning under its jurisdiction.