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role of the gse as a capital mkt

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									THE ROLE OF THE GHANA STOCK
    EXCHANGE AS A CAPITAL
    MARKET INTERMEDIARY
    AND ITS DEVELOPMENT
          CHALLENGES


     MR. S.K. PEPRAH, SENIOR MANAGER,
          GHANA STOCK EXCHANGE



                      MAY 2004
      1. CAPITAL MARKET - NATURE
                     FINANCIAL MARKETS


        MONEY MARKETS                       CAPITAL MARKET

         SHORT TERM                           LONG TERM
      FUNDS/INSTRUMENTS                   FUNDS/INSTRUMENTS
         (Securities)                         (Securities)

i.      Market for long-term debt and equity.
ii.     Instruments are mainly government and corporate.
2.     CAPITAL MARKET - STRUCTURE
    SEC (Regulator)
    The Stock Market
    Broker Dealers
    Collective Investment Vehicles
    Investment Bankers
    Registrars
    Custodians
3.        CAPITAL MARKET - ACTIVITIES
    Activities are classified as either PRIMARY or SECONDARY
    Primary Market          - for new issues of securities
                             - Proceeds of sales go to the
                                  issuer of the securities sold.
    Secondary Market        - for already issued securities.
                             - Exchange and over-the-counter.
                             - Proceeds of secondary market
                                  sales accrue to the selling dealers
                                  and investors.
    4.    CAPITAL MARKETS - ROLE
-    Provide a market for raising long-term capital.
-    Major link between companies (and Government) with
     long-term capital needs and the public with savings to
     invest.
-    Saves companies the interest burden associated with the
     use of short term borrowed funds.
-    Promotion of economic growth.
-    Job creation through business expansion.
-    Promote thrift, savings and investment habit.
-    Provide liquidity to investors.
    4.     CAPITAL MARKETS – ROLE (c’ont)

-    Provide a variety of methods to raise funds.
-    Establish a pricing mechanism for financial assets.
-    Provide a powerful tool for governments and policy
     makers to manage economies.
-    Jobs for financial analysts, brokers, investment lawyers
     etc.
-    Improve the visibility of listed companies.
-    Enhance corporate transparency.
-    Improved share price appreciation.
-    Enhance volumes of securities trades.
5.      GHANA STOCK EXCHANGE
        HISTORICAL BACKGROUND
    July, 1989     -   Incorporated as a private
                        company limited by
                        guarantee.
    November, 1990 -   Commenced Operations.
    April 1994     -   Changed status to a public
                        company limited by
                        Guarantee.
6.     GSE - INSTITUTIONAL
       ARRANGEMENT
    GSE is governed by a Council of 13
     members.
    Membership of the Council represent
     Listed Companies, Licensed Dealing
     Members, Banks, the Money Market,
     Insurance and the general public.
    The Managing Director of the Exchange is
     an ex-officio member.
6.      GSE - INSTITUTIONAL
        ARRANGEMENT (c’ont)
    The Council sets the policies of the Exchange.
    The functions of Council include the following:
      - prevention of fraud
      - Maintenance of good order among members.
      - Regulating the stock market business
      - Granting of listing
7. GSE             -     MEMBERSHIP
   The Exchange has no owners but members.
   55 members currently.
   There are three categories of members viz.
       -     Associate Members (35)
       -     Licensed Dealing Members (LDMs)
             (14)
       -     Government Securities Dealers (17)
             (many of whom are either associates or
             LDMs already).
    8.        GSE -  LEGAL/REGULATORY
              FRAMWORK
    Legislation
          -    The Companies Code, 1963, (Act 179)
          -    The Securities Industry Law, 1993
               (PNDC L.333)
          -    Securities Industry (Amendment) Act, 2000 Act 590
          -    Securities and Exchange Commission Regulations 2003
               1728
          -    Act 1695
               GSE Regulations/Rules
          -    Stock Exchange (Ghana Stock Exchange)
          -    Listing Regulations, 1990 LI 1509
          -    Stock Exchange (Ghana Stock Exchange)
          -    Membership Regulations, 1991 LI 1510
          -    Trading and Settlement Rules
          -    Rules on Take-overs and Mergers.
9.      GSE   -  STRUCTURE
        AND PRODUCTS
    STRUCTURE
        -  14 Licensed Broker/Dealers (LDMs)
        -  26 Listed Companies
        -  4 Registrars
        -  3 Custodians
    PRODUCTS
        -  26 Ordinary shares
        -  4 Corporate Bonds
        -  25 GGILBs
10.   GSE -         MARKET OPERATIONS

   TRADING
      -   Manual
      -   Continuous Auction Trading (CAT)
      -   3 times a week (Mondays/Wednesdays/Fridays)
      -   Re-opening period – 9.00 a.m. to 10.00 a.m.
      -   Market Opens at 10.00 a.m. (Opening price for
          listed securities established)
      -   Substantive Trading – 10.00 a.m. to 12 noon
      -   Over the Counter (OTC) trade allowed in AGA
          shares only.
      -   Short selling is not allowed.
10.   GSE -       MARKET OPERATIONS
      (c’ont)
   CLEARING AND SETTLEMENT
      -   Manual but centralised
      -   Settlement cycle for equities is T + 3
          (3 business days after trading)
      -   Bonds settle same day (T + 0)
      -   Good delivery rule is DVP
          (delivery versus payment)
      -   Failed Trades are sanctioned.
10.   GSE -       MARKET OPERATIONS
      c’ont
   LISTING
      -   Three tiers/windows exist on the
          official list for the shares of small,
          medium and large companies.
      -   Regulations permit the listing of
          both local and foreign companies.
11.     GSE -   METHODS OF BRINGING
        SECURITIES TO THE EXCHANGE

     There are 3 main methods of gaining
      entry to the GSE:-
      - Introduction
      - Private Placement
      - Offer to the Public
11.    GSE -   METHODS OF BRINGING
       SECURITIES TO THE EXCHANGE cont
   INTRODUCTION
       - Company does not have to raise new
         capital.
       - Shareholders do not need to reduce their
         shareholding.
       - Securities to be listed are widely held.
       - Securities are of such an amount that they
         are assumed to be adequate/marketable.
       - The cheapest method of entering the
         market.
11.     GSE -   METHODS OF BRINGING
        SECURITIES TO THE EXCHANGE cont
     PRIVATE PLACING
        -   A Broker offers the shares
            privately to selected
            individuals/institutions.
        -   Does not constitute an offer to the
            public.
        -   Therefore, no prospectus is
            required.
11.     GSE -   METHODS OF BRINGING
        SECURITIES TO THE EXCHANGE cont
     OFFER TO THE PUBLIC
        -   May be an offer for subscription or
            an offer for sale or both.
        -   Company invites the public to
            subscribe (if an offer for
            subscription)
        -   The proceeds accrue to the
            company.
11.      GSE -   METHODS OF BRINGING
         SECURITIES TO THE EXCHANGE cont
     OFFER TO THE PUBLIC
        -    Existing shareholders invite the public
             to purchase their shares (if an offer for
             sale)
        -    The proceeds accrue to the selling
             shareholders.
        -    An offer to the public always requires
             the circulation of an approved
             Prospectus.
12. TAXATION
-   10% withholding tax on dividends (this is final)
-   Corporate Tax
-   Stamp duty on the transfer of listed securities
    abolished with effect from March 20, 1996.
-   Capital gains on listed securities exempted from
    tax (initially from Nov. 12 1990 to Nov. 11,
    1995. Subsequently, extended to Nov. 11, 2000.
    Further extended for another 5 years to Nov. 11,
    2005).
12. TAXATION (c’ont)
   Shares received as a gift – liable to Gift Tax in the hands
    of the person receiving the shares (the tax – varies from
    5% to 15% depending on the value of the gift).
   Registration of notice of any increase in Stated Capital in
    excess of ¢5,000 – registration fee of 0.2% of the value is
    payable.
   Corporation Tax - 30% for listed companies, 32 1/2%
    for all others.
   Newly listed Companies (for the next 3 years)
    Corporation tax at 25% (All others – 30% Corporate tax
    with effect from 2005.
    13. GSE -      AN INTERMEDIARY

   Shares Volumes and Values
    - Shares valued ¢1,158.85 billion traded
    - Shares traded amount to 740.78 million
13. GSE -        AN INTERMEDIARY
   Capital Raised
    - Capital Raised
    - Equity Issues:
      -     IPOs -     ¢320.88 billion
      -     Rights/Additional Shares
            -     ¢272.61 billion
13. GSE -        AN INTERMEDIARY
   Corporate Bonds - US$16.5 million
   Government Bonds- ¢1,552 billion
   Market Capitalization - ¢33.5 billion in
    1990 - ¢96,367.95 billion as at May 24,
    2004
                                                Market Index
       GSE All-share Index rose from 70.08 points in 1990 to
        6,824.39 points by May 24, 2004
7,000




                                                                                                                         May-04
6,000




5,000




4,000




                                                                                                                         Dec-03
3,000




2,000




                                                                                                                Dec-02
                                                                            Dec-98




                                                                                                       Dec-01
                                                                   Dec-97




                                                                                              Dec-00
1,000

                                                                                     Dec-99
                                                 Dec-95



                                                          Dec-96
                                       Dec-94
            Dec-91

                     Dec-92


                              Dec-93




    -
                                                                                                                                                                Share Price (¢)




                                                                                                                                2,000
                                                                                                                                        4,000
                                                                                                                                                6,000
                                                                                                                                                        8,000
                                                                                                                                                                 10,000
                                                                                                                                                                          12,000
                                                                                                                                                                                     14,000
                                                                                                                                                                                              16,000
                                                                                                                                                                                                       18,000
                                                                                                                                                                                                                20,000
                                                                                                                                                                                                                                         22,000




                                                                                                                          0
                                                                                                                              Dec-90

                                                                                                                          Dec-91

                                                                                                                          Dec-92

                                                                                                                          Dec-93


                                                                                                                          Dec-94


                                                                                                                          Dec-95

                                         Share Price (¢)
                                                                                                                          Dec-96




         10,000
                    20,000
                               30,000
                                        40,000
                                                 50,000
                                                           60,000
                                                                    70,000
                                                                             80,000
                                                                                                 90,000




0
                                                                                                                              Dec-97

Dec-90                                                                                                                        Dec-98
Dec-91
                                                                                                                              Dec-99
Dec-92
                                                                                                                                                                                                                Unilever Ghana Limited




Dec-93
                                                                                                                          Dec-00
    Dec-94
                                                                                                                               Dec-01

    Dec-95

                                                                                                                                        Dec-02
 Dec-96
                                                                                                                                                                                   Dec-03
      Dec-97
                                                                                                                                                                                                                May-04

                     Dec-98


                  Dec-99
                                                                                                                                                                                                                                                  Share Price Performance




                    Dec-00


                   Dec-01
                                                                                       Standard Chartered Bank Gh. Ltd.




                             Dec-02

                                                          Dec-03
                                                                                      May-04
                                                                                                                             Share Price (¢)




                                                                                             2,000
                                                                                                        4,000
                                                                                                                 6,000
                                                                                                                         8,000
                                                                                                                                   10,000
                                                                                                                                            12,000
                                                                                                                                                     14,000
                                                                                                                                                              16,000
                                                                                                                                                                           18,000
                                                                                                                                                                                                               20,000




                                                                                   0
                                                                                  Jan-91


                                                                                  Dec-91


                                                                                  Jan-93

                                                                                  Dec-93


                                                                                    Dec-94



                                                                                   Dec-95



                             Share Price (¢)                                       Dec-96


                                                                                       Dec-97




         1,000
                     2,000
                             3,000
                                       4,000
                                               5,000
                                                       6,000
                                                                      7,000




0
                                                                                             Dec-98
Dec-90
                                                                                           Dec-99
Dec-91

Dec-92
                                                                                              Dec-00
Dec-93
                                                                                               Dec-01

Dec-94
                                                                                                                                                                               Enterprise Insurance Co. Ltd.




Dec-95
                                                                                                        Dec-02

                                                                                                                                 Dec-03
Dec-96
                                                                                                                                                                       May-04


 Dec-97

                 Dec-98
    Dec-99
                                                                                                                                                                                                                        Share Price Performance




                                                               Fan Milk Limited




    Dec-00


    Dec-01


                 Dec-02

                                     Dec-03
                                                               May-04
                                                                                                                                                   Share Price (¢)




                                                                                                                    5,000
                                                                                                                               10,000
                                                                                                                                         15,000
                                                                                                                                                     20,000
                                                                                                                                                              25,000
                                                                                                                                                                       30,000
                                                                                                                                                                                   35,000
                                                                                                                                                                                             40,000
                                                                                                                                                                                                                         45,000




                                                                                                           0
                                                                                                           Dec-91

                                                                                                           Dec-92

                                                                                                               Dec-93


                                                                                                               Dec-94


                                                                                                                Dec-95


                                    Share Price (¢)                                                               Dec-96




                            1,000
                                    1,500
                                               2,000
                                                       2,500
                                                               3,000
                                                                                                   3,500




0
             500
                                                                                                                            Dec-97
                                                                                                                                             Dec-98

Dec-94                                                                                                                                  Dec-99


Dec-95
                                                                                                                                                                                                  Mobil Oil Ghana Ltd.




                                                                                                                                                   Dec-00
Dec-96
                                                                                                                                                  Dec-01


    Dec-97
                                                                                                                                                   Dec-02
 Dec-98
                                                                                                                                                                                Dec-03
                                                                                                                                                                                            May-04

Dec-99



Dec-00
                                                                                                                                                                                                                                  Share Price Performance




                                                                       Mechanical Lloyd Co. Ltd.




Dec-01




    Dec-02



                   Dec-03           Mar-04                     Apr-04
14. DEVELOPMENT CHALLENGES
    -  GSE
-   Number of listings (equity/debt) stunted in
    growth.
-   Low Level of liquidity
-   Inadequate Infrastructure – Manual trading,
    CSD
-   Inadequate local investor participation.
-   Interest rates
-   Inflation
14     DEVELOPMENT CHALLENGES
       -  GSE (c’ont)
-   Forex exposure
-   Pricing efficiency
-   Skepticism of potential companies.
-   Relatively expensive rates/charges
-   Abolition of dividend tax (especially for
    individual investors)
-   Government should use the market as a conduit
    for divesting itself of good SOEs.
-   Restrictions on foreign portfolio investments.
-   Expanding coverage of promotional programmes.
15. CONCLUSION
   The role of the Stock Exchange as a Capital
    Market intermediary in the whole process of
    wealth creation and national economic
    development can not be over emphasised. It can
    be easily seen in the growth of the economies of
    countries in Asia e.g. Malaysia, South Korea, etc.
   In our circumstances also, the statistics presented
    in this review have indicated clearly and
    undeniably that the Ghana Stock Exchange has
    served as a veritable.
15. CONCLUSION (c’ontd)
   Channel through which the flows of savings have been
    allocated to investment.
    The Stock Exchange has provided a variety of financial
    assets and a variety of methods for raising funds on the
    Ghanaian financial landscape.
    Without the further development and
    enhancement/strengthening of our stock market we can
    not hope to promote the efficient allocation of resources
    from savers to the users of capital to ensure the
    stimulation of our domestic industry/job creation.

								
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