It has been established that African stock markets are confronted with a multitude of problems which include, inadequate liquidity, low capitalisation, few market participants, a small number of listed companies and low trading volumes. As a result, their broader economic impact has so far been limited. The Southern Africa Development Community (SADC) stock markets with the exception of South Africa are small, both in terms of the number of listed companies and market capitalisation, and they display considerable illiquidity. In general, the SADC region has shallow and underdeveloped financial markets. Their development has been hampered by a number of factors which include; political and economic uncertainty, fiscal dominance, weak judicial institutions, limited investment opportunities in the private sector, technological constraints, and the shortage of skilled personnel with expertise in banking and finance. It is contended that all these problems could be eased through regional financial integration. The integration of African stock markets and the introduction of regional stock exchanges will promote cross-border listings and thus stimulate increased liquidity across markets. Thus, it is suggested that the integration of SADC’s stock markets and the creation of a regional stock exchange is one of the panaceas to overcome Africa’s stock market problems. A regional stock exchange has the potential for tremendous benefits for both local and foreign investors, as well as for business enterprises in the region
Table of Contents
Chapter One Introduction
1.1 Background
1.1.1. Aims of the Research
1.2. Research Statement
1.3. Research Questions
1.4. Significance of the Research
1.5. Research Methodology
1.6. Limitation of Study
1.7. Literature Review
1.8. Sequence of Chapters
Chapter Two Understanding the Concept of Cross-listings
2.1. Introduction
2.2. Defining the Concept of Cross-listings
2.3. Reasons for Domestic markets and Firms to participate in cross-listings
2.3.1. Expand Investor Base
2.3.2. Liquidity
2.3.3. Increase Visibility
2.3.4. Financial Gains
2.3.5. Marketing Motivations
2.3.6. Bonding
2.3.7. Increased Analyst Coverage
2.4. How Cross listings can contribute to a Regional Exchange
2.5. Conclusion
Chapter Three Lessons from West Africa and EAC
3.1. Introduction
3.2.1. The Requirements for a proper Legal and Regulatory Framework
3.2.2. Investment Code
3.2.3. Supervisory Authority
3.2.4. Harmonisation
3.3. Regional Market Integration
3.3.1. Benefits of Regional Capital Markets Integration
3.3.2. Challenges of Regional Capital Markets Integration
3.3.3. Lack of Commitment
3.3.4. Overlapping Memberships
3.3.5. High Transaction Costs
3.3.6. Governments, National Markets and Companies
3.3.7. Lack of Information
3.3.8. Income Disparity between South Africa and Other SADC Countries
3.3.9. Lack of Public Confidence
3.3.10. Disruption Spill Over From One Market to Another
3.4. Lessons from Other Regions
3.4.1. West Africa
3.4.2. East African Community
3.5. Conclusion
Chapter Four The Euronext as a Working Example of a Regional Stock Exchange and Comparative Discussion with Africa
4.1. Introduction
4.2. History and Background of Euronext
4.3. Regulatory Authorities
4.4. Harmonisation of Listing Requirements
4.4.1. Rulebook I
4.5. Harmonisation of Legislation
4.6. Comparative Discussion with Africa
4.7. Conclusion
Chapter 5 Conclusions and Recommendations
5.1. Conclusion
5.2. Recommendations
5.2.1. Proposed recommendations
5.2.2. Harmonisation
5.2.3. Legal and Regulatory Framework
5.2.4. Institutional Framework
5.2.5. Commission of Securities Regulators
5.2.6. Promotion campaigns
5.2.7. Capacity building
5.2.8. Final remarks
Research Objectives & Core Themes
The research evaluates the role of cross-listings in establishing a SADC regional stock exchange and overcoming the liquidity and capitalization challenges faced by national stock markets in the region, while drawing lessons from the integration experiences of the East African Community, West Africa, and the European Union.
- Regional financial integration as a solution to stock market development.
- The mechanism and benefits of cross-listings for emerging markets.
- Comparative analysis of regional stock exchange models (Euronext, EAC, BRVM).
- Legal and regulatory framework requirements for integration.
- Strategic recommendations for the establishment of a SADC regional stock exchange.
Excerpt from the Book
2.3.1 Expand Investor Base
Cross-listings in a foreign market make the domestic market available to more investors and, consequently increase the shareholder base and risk sharing, which results in higher valuations.60 Foerster and Karolyi provide empirical support to this perception, namely that cross-listing increases market value by expanding the shareholder base and improving liquidity.61 In support of this notion, Canadian managers whose firms are cross listed in the U.S. place greater emphasis on the role of cross-listings in widening their shareholder base.62
As cross listings increase the shareholder base, the market’s risk is shared among more shareholders and this increased diversification reduces the market’s cost of capital.63 Baker reports that the major benefit of foreign listing is to broaden the shareholder base.64 It is depicted that cross-listings increase the investor base of the stock market with beneficial effects on its cost of capital.65 Cross-listings help to draw the interest of new investors and encourage them to start trading in both foreign and local markets.66 The interest may come not only from the larger scope of corporate information available after listing overseas, but also from a signal of commitment to higher governance standards which a local market sends when deciding to enter foreign markets.67 Furthermore, by cross-listing a domestic market could expand its potential investor base more easily than if it is traded on a single market, as cross-listings bring foreign securities closer to potential investors, and they increase investor awareness of the securities.68 Therefore, firms and domestic markets participate in cross listings because this provides an avenue for portfolio diversification for a wider investor base.
Summary of Chapters
Chapter One Introduction: Introduces the challenges of African stock markets and sets the research context, objectives, methodology, and literature review regarding cross-listings.
Chapter Two Understanding the Concept of Cross-listings: Examines the definition, theoretical reasons for cross-listing participation, and how cross-listings contribute to regional exchange integration.
Chapter Three Lessons from West Africa and EAC: Analyzes the regulatory requirements for regional integration and provides a comparative assessment of the West African and East African experiences.
Chapter Four The Euronext as a Working Example of a Regional Stock Exchange and Comparative Discussion with Africa: Uses Euronext as a case study for successful regional integration and discusses the regulatory and operational lessons relevant to Africa.
Chapter 5 Conclusions and Recommendations: Synthesizes findings and provides specific policy recommendations for the establishment of a SADC regional stock exchange.
Keywords
SADC regional stock exchange, CoSSE, Cross-listings, Regional stock exchange, Capital markets, Financial markets integration, Johannesburg Stock Exchange, Regional integration, Southern Africa Development Community, National stock exchanges, Equity markets, Securities regulation, Regulatory harmonization, Financial sector development, Stock market liquidity.
Frequently Asked Questions
What is the primary objective of this research?
The research aims to evaluate how cross-listings can serve as a catalyst for establishing a SADC regional stock exchange and solving the liquidity and capitalization issues currently plaguing national stock markets in the SADC region.
What are the main thematic fields covered in the work?
The study covers financial market integration, the legal and regulatory frameworks necessary for cross-listings, institutional requirements, and comparative analysis of existing regional exchange models.
What research methodology does the author employ?
The author uses a desktop and library-based study, reviewing treaties, protocols, and academic literature. It also employs a comparative study, analyzing experiences from the East African Community, West Africa, and Euronext.
What is the role of CoSSE in this integration process?
CoSSE (Committee of SADC Stock Exchanges) is identified as the key institution driving integration in the SADC region, working under the draft SADC Finance and Investment Protocol.
What are the identified preconditions for a robust regional regulatory framework?
Key preconditions include the harmonization of legislation (bankruptcy, listing, accounting), establishment of independent supervisory authorities, coordinated monetary arrangements, and harmonized reporting standards.
What are the main findings regarding the Euronext model?
Euronext is presented as a successful, private-sector-driven pan-European model that achieved operational integration through common rulebooks and centralized trading platforms, though enforcement remains largely jurisdiction-specific.
Why is the "Bonding Hypothesis" significant to this work?
The bonding hypothesis explains that firms cross-list in foreign markets to commit to higher standards of corporate governance, thereby protecting minority shareholders and increasing access to capital.
What challenges does the author highlight for SADC integration?
The author points to lack of political commitment, income disparities between member states, overlapping regional memberships, and the current weakness of legal and judiciary systems as primary obstacles.
- Quote paper
- Moses Wisdom Chisadza (Author), 2013, The role of cross-listings in establishing a Southern African Development Community regional stock exchange, Munich, GRIN Verlag, https://www.grin.com/document/267629
