ECMA Finalizing Legal Framework for Capital Market Rollout in Ethiopia

ADDIS ABABA – The Ethiopian Capital Market Authority (ECMA) has made a major step in finalizing the legal framework for capital markets rollout.

The federal regulatory body is currently working on legal instruments that are critical in Ethiopia’s bid to make the stock market a reality in the 2024/25 fiscal year.

The authority said it reached an “exciting milestone” last week after its board of directors sanctioned 3 draft directives to move onto the final stages in the approval process.

ECMA has now posted the draft directives online in a bid to solicit written comments from relevant agencies and the public as per the 202o Federal Administrative Procedure law.

And a directive on Licensing and Operating Securities Exchanges and Trading Platforms is among the drafts.

The proposed directive sets out the regulatory requirements for the establishment and operations of securities exchange, derivative exchanges and other trading platforms and facilities.

A draft Capital Market Service Providers Licensing and Supervision directive is also the other draft rule put forward for public review.

The draft provides the legal framework for ECMA to “effectively and efficiently” license and regulate capital market services providers.

The framework paves the way to allow investment banks to operate in Ethiopia, as well as issue 18 service providers licenses.

These licenses include securities brokers, securities dealers, and credit rating agencies, market makers, portfolio managers, robo-advisors and investment advisors.

The directive also set out functions and authorized activities for service providers as well as the terms and conditions that accompanied them.

The draft Recognition of Self-Regulatory Organizations directive is also the third regulation that ECMA put forward for public consultations.

It provides a legal framework for an entity to be established under ECMA as a self-regulatory body to supervise Capital Market Service Providers.

ECMA posted the drafts online on Monday, inviting the public to comment within 15 working days (until March 6, 2023) – a minimum time set in the federal administrative procedure act.

The authority is expected to organize an open public forum for all interested persons and gather inputs on the drafts before their final approval, as per the act.

Speaking at the Invest Origins event on Jan 26, ECMA’s Director General Brook Taye noted that the draft directives are designed to enable the listing of shares.

They would also allow the formation of a Capital and Securities Exchange Market on which people will trade, on fixed income side, corporate bonds and earn future derivatives, he said.

With the legal instruments shaping up, the authority plans to begin licensing service providers in the next six months – a major step in the bid to create a full-fledged capital market in Ethiopia.

The formation of the stock market is expected to mitigate the risk posed by an overreliance on the bank-dominated financial sector and impose the allocation of resources, among others.

Featured Image: Director General of the Ethiopian Capital Market Authority Brook Taye. [Photo ECMA]