Regional financial Integration in Africa: Cross-listings as a form of regional financial integration
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Textbook
113 Pages
Summary
This book looks at contemporary issues facing financial markets in Southern Africa. 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.
Excerpt
Table Of Contents
VIII
Table of Contents
ACKNOWLEDGEMENTS ...V
ACRONYMS ... VI
CHAPTER ONE ... 11
UNDERSTANDING THE CONCEPT OF CROSS-LISTINGS ... 11
1.1 INTRODUCTION ... 11
1.2 DEFINING THE CONCEPT OF CROSS-LISTINGS ... 11
1.3. REASONS FOR DOMESTIC MARKETS AND FIRMS TO PARTICIPATE IN CROSS-LISTING 14
1.3.1 Expand Investor Base ... 14
1.3.2 Liquidity ... 15
1.3.3 Increase Visibility ... 17
1.3.4 Financial Gains ... 18
1.3.5 Marketing Motivations ... 18
1.3.6 Bonding ... 19
1.3.7 Increased Analyst Coverage ... 21
1.4. HOW CROSS-LISTINGS CAN CONTRIBUTE TO A REGIONAL EXCHANGE IN SADC AS A
LEAD-IN TO REGIONAL MARKET INTERGRATION ... 22
1.5 CONCLUSION ... 26
CHAPTER TWO ... 27
LESSONS FROM WEST AFRICA AND EAC ... 27
2.1 INTRODUCTION ... 27
2.
1.1 The Requirements for a Proper Legal and Regulatory Framework for the Regional
Integration of Capital Markets ... 27
2.
1.2 Investment Code ... 28
2.
1.3 Supervisory Authority ... 28
2.
1.4 Harmonisation ... 30
2.
2 REGIONAL MARKET INTEGRATION ... 33
2.
2.1 Benefits of Regional Capital Markets Integration ... 33
2.
2.2 Challenges of Regional Capital Market Integration ... 36
IX
2.
2.3 Lack of commitment ... 36
2.
2.4 Overlapping Memberships ... 38
2.
2.5 High Transaction Costs ... 38
2.
2.6 Governments, National Markets and Companies would have to make Changes ... 39
2.
2.7 Lack of information ... 41
2.
2.8 Income Disparity between South Africa and other SADC Countries ... 41
2.
2.9 Lack of Public Confidence and Human Resources ... 42
2.
2.10 Disruption Spill Over from One Market to Another ... 44
2.
3 LESSONS FROM OTHER REGIONS ... 46
2.
3.1 West Africa ... 46
2.
3.2 East African Community ... 51
2.4 CONCLUSION ... 58
CHAPTER THREE ... 60
THE EURONEXT AS A WORKING EXAMPLE OF A REGIONAL STOCK EXCHANGE AND
COMPARATIVE DISCUSSION WITH AFRICA ... 60
3.1 INTRODUCTION ... 60
3.2 HISTORY AND BACKGROUND OF EURONEXT ... 60
3.3 REGULATORY AUTHORITIES ... 63
3.4 HARMONISATION OF LISTING REQUIREMENTS ... 67
3.4.1 Rulebook I ... 68
3.5 HARMONISATION OF LEGISLATION ... 73
3.6 COMPARATIVE DISCUSSION WITH AFRICA ... 75
3.7 CONCLUSION ... 79
CHAPTER FOUR ... 81
CONCLUSIONS AND RECOMMENDATIONS ... 81
4.1 CONCLUSION ... 81
4.2. RECOMMENDATIONS ... 83
4.2.1 Proposed recommendations ... 83
4.2.2 Harmonisation ... 85
4.2.3 Legal and Regulatory Framework ... 87
X
4.2.4 Institutional Framework ... 88
4.2.5 Commission of Securities Regulators ... 90
4.2.6 Promotion campaigns ... 92
4.2.7 Capacity building ... 94
4.2.8 Final remarks ... 94
BIBLIOGRAPHY ... 96
11
CHAPTER ONE
UNDERSTANDING THE CONCEPT OF CROSS-LISTINGS
1.1 INTRODUCTION
The core aim of this chapter is to establish how cross-listings will assist in establishing a
SADC regional stock exchange. This chapter attempts to provide an insight into
understanding the concept of cross-listings.
After addressing the concept of cross-listings, this chapter examines the reasons driving
domestic markets and firms to participate in cross-listings. Lastly, it addresses how cross-
listings can contribute to a regional exchange in SADC as a lead-in to regional exchanges.
1.2 DEFINING THE CONCEPT OF CROSS-LISTINGS
The concept of "cross-listings" is a new and efficient instrument which enhances the
integration of emerging stock markets with global stock markets.
1
Cross-listings refer either
to the listing of ordinary shares of a firm on a different exchange other than its home stock
exchange, or entail a single stock being listed on more than one exchange.
2
In addition,
cross-listing is a strategic policy of firms to secondarily list their shares abroad.
3
Cross-
listings can be achieved via direct listing, the Depository Receipts Programme, and Global
Registered Firms.
4
Direct listing is where an increasing number of firms perceive the benefits
of listing their securities abroad.
5
Generally such a firm's primary listing is on a stock
exchange in its country of incorporation, and its secondary listing is on an exchange in
another country.
6
Cross-listing is especially common for companies that started out in a small
market but grew into a large market. Furthermore, cross-listings is a mechanism through
which domestic markets and firms can improve their access to the lower cost of external
1
SabriN (2002) 208.
2
Onyuma S & Mugo R et al (2012) 92.
3
Bhumisirikul T & Supattaraku S Cross Listing, Firms Origins And Destinations, And Cost of Equity Capital
(2011) 521 The Barcelona European Academic Conference.
4
Karolyi A `Why do companies list shares abroad? A survey of the evidence and its managerial implications'
(1998) 7 Financial Markets Institutions and Instruments 12.
5
Mmieh F & Frimpong N `The Making of a Sub-Saharan Africa Success Story: The Case of Cross-Border
Listing of Trust Bank Limited of the Gambia on the Ghana Stock Exchange' (2009) 51 Thunderbird
International Business Review 378.
6
Miller D `The market reaction to international cross-listings: Evidence from depository receipts' (1999) 51
Journal of Financial Economics 103.
12
financing and consequently use the funds to invest in viable projects, and affirm a strong
commitment to stringent rules backed by stringent enforcement.
7
It is important to note that the concept of cross-listings expanded significantly in the nineties
and it started in the United States of America (USA).
8
Burns and Bill regard cross-listings as
a vehicle through which a firm's management can bond themselves to a legal system with
more protections against management self dealing or excessive consumption of private
benefits of control.
9
Therefore, cross-listings can be characterised as a limited type of
jurisdictional choice that involves opting into an alternative, perhaps stricter, regime from
that in which the market is based, but not opting out of the default jurisdiction.
10
Proponents of cross-listings assert that regional integration can bring greater efficiency,
synergies and economies of scale; attract foreign flow of funds; foster risk sharing and
portfolio diversification; act as an impetus to financial sector reforms, thereby broadening the
competitiveness of regional financial systems and minimising the risks of financial
instability; facilitate capital market development; and lead to economic growth.
11
Economic
growth increases in integrated markets because of the better allocation of capital among
investment opportunities.
12
However, cross-listings have implications not only for cross-listing markets, but also for
countries in which these markets are based, as cross-listing markets might demand changes in
home country law in order to better coordinate with the law of the cross-listed jurisdiction.
13
Thus, if cross-listing countries attempt to impose laws on cross-listing markets which conflict
with the law of their home countries; this could reduce cross-listing and, therefore, the
benefits which that foreign market brings to cross-listing jurisdictions.
14
It is contended that,
even though cross-listings give wider opportunities to potential investors or companies to
invest in multiple markets in order to exploit profit opportunities, they are susceptible to
7
Inder & Khurana et al `Does cross-listing lead to a higher firm growth?'(2004) University of Missouri.
Colombia 9 available at http://www.zwu-wien.ac.af (accessed on 11 January 2013).
8
Sabri N (2002) 206.
9
Burns & Bill `Cross-listing and Legal Bonding: Evidence from mergers and acquisitions' (2006) University of
Georgia New York available at http://www.ceistorvergay.it/conferenzconvergin/banking&finance (accessed 11
January 2013).
10
Coffee J `Racing Towards the Top? The impact of Cross-Listings and Stock Market Competition on
International Corporate Governance' (2002) 102 Columbia Law Review 1757.
11
Faruqee H ` Equity Market Integration in Integrated Europe's Financial Market in
Market'
in Decressin J
and Fonteyne W (ed) Integrated Europe's Financial market (2007) 14.
12
Mensah S (2007) 3.
13
Ribstein L `Cross-Listing and Regulatory Competition' (2005) 1 Review of Law & Economics 99.
14
Ribstein L (2005) 99.
13
market conditions, and there is a potential loss of management control, associated costs, loss
of privacy and an increase in reporting and disclosures.
15
Regional cross-listings in Africa have either been policy driven or market driven.
16
Some of
the government policy-induced regional cross-listings are the cross-listings between the
Johannesburg Stock Exchange (JSE) and the Namibian Stock Exchange (NSX) in October
1992.
17
In the SADC region there has been regional cross-listing between stock markets in
Botswana and South Africa since 1997, Malawi and South Africa in 1999, and Zambia and
South Africa in 2003
18
. For instance, Investec Limited of South Africa has primary listings on
the JSE, and is also dually listed in Botswana since 1995.
19
Ashanti Goldfields is listed on the
Zimbabwe Stock Exchange and is also cross-listed on the Ghana Stock Exchange (GSE), the
London Stock Exchange (LSE), and the New York Stock Exchange (NYSE).
20
AngloGold
Ashanti has its primary listing on the JSE and a secondary listing on the GSE.
21
Moreover, a
number of companies are cross-listed on the Zimbabwe Stock Exchange and the JSE: Bicc
Cafca Ltd, Falcon Investment Holdings, Old Mutual, Pretoria Portland, and Wankie
Colliery.
22
Oando PLC, registered in Nigeria, cross listed on the JSE on 25 November 2006.
23
The market driven cross-listings, on the other hand, include the West African triple cross-
listing of Ecobank on the Bourse Régionalede Valeurs Mobilières (BRVM), the Nigerian
Stock Exchange (NiSE), and GSE; and the cross-listing of Shoprite on the JSE and Lusaka
Stock Exchange (LuSE) in Zambia.
24
Irrespective of the reason for the regional cross-listing,
it is beneficial to both the host and home countries.
Decisions on regional cross-listings are taken by firms, while market regulators, policy
makers and stock exchanges facilitate the regional approach to cross-listings by signing
Memoranda of Understandings (MoUs) and putting in place the necessary conditions to
harness the benefits of regional cross-listings and develop their capital markets.
25
15
Karolyi A (1998) 18.
16
Adelegan O Impact of the Regional Cross-Listings of Stocks on Firm Value in Sub-Saharan Africa (2009)
International Monetary Fund Policy Discussion Paper No. WP/09/99.
17
Onyuma, Mugo & Karuiya (2012) 96.
18
Onyuma, Mugo & Karuiya (2012) 12.
19
Adelegan (2008) 36.
20
Jefferis K & Mbekeani K (2000) 11.
21
Department of Economic Affairs (2008) 18.
22
Irving J (2005) 15.
23
Department of Economic Affairs (2008) 18.
24
Onyuma, Mugo & Karuiya (2012) 99.
25
Adelegan O (2009).
14
1.3. REASONS FOR DOMESTIC MARKETS AND FIRMS TO PARTICIPATE
IN CROSS-LISTING
Academic literature has identified a number of different reasons which motivate local
markets and firms to cross-list.
26
For example, firms and domestic markets cross-list in order
to expand their investor base, increase stock liquidity, improve the terms on which they can
raise capital, increase visibility of stock exchanges, and achieve non-financial benefits such
as increasing their customer base through the broadening of product recognition among
investors of the host country.
27
In addition, cross-listings enrich and strengthen each
individual exchange by the addition of quality-level listed securities.
28
1.3.1 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.
29
Foerster and Karolyi provide empirical support to this perception, namely that
cross-listing increases market value by expanding the shareholder base and improving
liquidity.
30
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.
31
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.
32
Baker
reports that the major benefit of foreign listing is to broaden the shareholder base.
33
It is
depicted that cross-listings increase the investor base of the stock market with beneficial
effects on its cost of capital.
34
Cross-listings help to draw the interest of new investors and
26
Misati R `Liberalisation, Stock Market Development and Investment Efficiency in Africa' (2006) Conference
Paper St. Catherine College, Oxford 8.
27
Ayyagari M Does Cross Listing Lead to Functional Convergence? Empirical Evidence (2004) 6 World Bank
Policy Research Working Paper 3264.
28
Misati R (2006) 8.
29
Bris A, Cantale S & Nishiotis G `A Breakdown of the Valuation Effects of International Cross- Listing'
(2007) 13 European Financial Management 298.
30
Foerster S & Karolyi A `The effects of market segmentation and illiquidity on asset prices: evidence from
foreign stock listing in the U.S' (1998) 54 Journal of Finance 981.
31
King M & Mittoo U `Why Companies Need to Know About International Cross-Listing' (2007) 19 Journal of
Applied Corporate Finance 61.
32
Coffee J (2002) 13.
33
Baker H `Why Us Companies List on the London, Frankfurt and Tokyo Exchanges' (1992) The Journal of
International Securities Markets 219
.
34
Doukas J & Switzer L `Common Stock Return and International Listing Announcements: Conditional Tests
Of The Mid Segmentation Hypothesis' (2000) 24 Journal of Banking & Finance 471.
15
encourage them to start trading in both foreign and local markets.
35
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.
36
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.
37
Therefore, firms and domestic markets participate in cross-
listings because this provides an avenue for portfolio diversification for a wider investor base.
1.3.2 Liquidity
Significantly, cross-listing on deeper and more liquid equity markets leads to an increase in
the liquidity of the stock and a decrease in the cost of capital. Liquidity is a crucial feature of
stock market development since greater liquidity can translate into a lower cost of capital for
the stock market concerned, insofar as it is valued by investors and factored into market
prices.
38
According to a World Bank study, liquidity in stock markets increases long-term
economic growth by easing firms' access to funds for investment.
39
In addition, liquidity
plays an important role in the ability of markets to attract trading volume.
40
Liquid markets
also experience faster rates of capital accumulation and subsequently greater productivity.
41
Hence, it can be noted that stock market liquidity can positively influence economic growth,
capital stock growth and productivity growth.
42
It is thus contended that cross-listings
generate improved liquidity which lowers the cost of capital and increases share value.
43
Cross-listings lead to an increase in liquidity due to a pick-up in trading volumes in both the
35
Korczak P & Bohl M `Empirical evidence on cross-listed stocks of Central and Eastern European companies'
(2005) 6 Emerging Markets Review 135.
36
Korczak P & Bohl M (2005) 135.
37
Licht A `Cross- Listing and Corporate Governance: Bonding or Avoiding?'(2003) 4 Chicago Journal of
International Law 141.
38
Pagano M, Randl O & Roell A et al `What makes stock exchanges succeed? Evidence from cross-listing
decisions' (2001) 45 European Economic Review 777.
39
Levine R & Zervos S Stock Markets, Banks and Economic Growth (1996) 44 World Bank Working Paper
No.44.
40
Sarkissian S & Schill M `Are there Permanent Valuation Gains to Overseas Listing? (2009) 22 The Review of
Financial Studies 375.
41
Senbet L & Otchere I (2008) 6.
42
Levine R & Zervos S `Stock Markets, Banks and Economic Growth' (1998) 88 American Economic Review
537.
43
Waweru K, Pokhariyal G & Mwaura M `The Key Reasons for Cross-Listing in East African Stock Exchange
by firms listed in the Nairobi Securities Exchange' (2012) 7 International Journal of Business and Management
118.
16
home and foreign stock market.
44
As a result of cross-listing, the home market and the host
market will compete for order flows
45
for the cross-listed stocks and order flows will shift to
the market with lower trading costs.
46
It is established that when local markets enter foreign
markets, liquidity of the domestic markets improves significantly.
47
Therefore, secondary
market liquidity increases following cross-listing in both the home and foreign market,
accompanied by a reduction in trading costs and a narrowing of bid-ask spreads in the home
market.
48
The cross-listings of emerging stock markets to developed stock markets increases domestic
prices by enhancing the ability of the domestic stocks to provide diversification and liquidity,
and transfers a segmented local equity market to an integrated market with high liquidity and
market capitalisation.
49
For example, Domowitz et al., based on a study of Mexican firms,
submits that cross-listings increase liquidity as long as the advantage of being traded in a
more liquid market outweighs the disadvantages of order flow migration.
50
Greater liquidity
is associated with increased visibility, greater analyst coverage, improved earnings forecasts,
and overall better investor recognition.
51
Cross-listings result in reduction of transaction
costs for investors through gains in market liquidity.
52
In contrast, cross-listings may not
always enhance liquidity, due to the potentially offsetting impact of market fragmentation.
53
It is argued that liquidity may suffer in both the domestic and the foreign market if inter-
market information linkages are poor.
54
Order flow migration from the domestic to the
foreign market after cross-listing, can, however, reduce the liquidity of the listed shares in the
domestic market.
55
Cross-listing is a dynamic and destabilising force that can moved
44
King M & Segal D International Cross-Listing and the Bonding Hypothesis (2004) 16.
45
Order flow is a measure of buying or selling pressure. It is the net of buyer- initiated orders and seller-initiated
orders. In a dealer market, it is the dealers who absorb this order flow, and they are compensated for doing so.
46
Liu S `International cross-listing and stock price efficiency: An empirical study' (2007) 8 Emerging Markets
Review 260.
47
Korczak P & Bohl M (2005) 135.
48
Bancel F & Mittoo U `European Managerial Perceptions of the Net Benefits of Foreign Stock Listings' (2001)
7European Financial Management 223.
49
Hargis K `International Cross-Listing and Stock Market Development in Emerging Economics' (2000) 9
International Review of Economics and Finance 101.
50
Domowitz I, Glen J & Madhavan A `International Cross- Listing and order Flow Migration Evidence from
Emerging Market' (1998) 53 Journal Of Finance 221.
51
Bailey W, Karolyi A & Salva C The Economic Consequences of Increased Disclosure: Evidence from Cross-
Listings (2002) 34.
52
Claessens S, Klingebiel D & Schmukler S Explaining the Migration of Stocks from Exchanges in Emerging
Economies to International Centres (2002) Centre for Economic Policy Research Working Paper No.3301.
53
Wang C What Makes Some Stock Markets More Attractive? An International Cross- Listing Analysis (2008)
12 North-South-Corridor Foundation.
54
Domowitz I, Glen J & Madhavan A (1998) 234.
55
Domowitz I, Glen J & Madhavan A (1998) 243.
17
liquidity from local exchanges to international markets, thereby impelling a consolidation
among market centres.
56
Nevertheless, cross-listings result in improved liquidity which is the
major reason why domestic markets participate in cross-listings.
57
1.3.3 Increase Visibility
The quest for increasing visibility of stock exchanges is the principal reason that drives
domestic markets to participate in cross-listings. The putative benefits of increased visibility
in the host country go well beyond the expected increase in shareholder base. Local capital
markets are attracted to cross lists to larger markets, insofar as they provide access to a larger
pool of potential investors.
58
Notably, being cross-listed on a larger stock market confers a
reputation upon a domestic stock market. In addition, to greater demand for its stock, cross-
listings provide a stock market with greater access to foreign money markets and makes it
easier to sell debt there.
59
Increased visibility can also boost local stock market marketing
efforts, by broadening product identification among investors and consumers in the host
country.
60
Evidence shows that cross-listings enhance the visibility of a market and signal to
customers and non-investor stakeholders that the market has become a global player.
61
For
example, Daimler-Benz, a German firm cross-listed on the NYSE in 1993 and this cross-
listing gave it direct access to the largest and most dynamic stock market in the world; as a
result it became the first firm in the world to have a truly global share.
62
It is established that
visibility of stock exchanges, as measured by analysts and media coverage, increases around
the time of cross-listings.
63
Smith and Sofianos analysed the effect of the New York Stock
Exchange (NYSE) listings on the liquidity of one hundred and twenty eight non-US stocks
and found that, after the cross-listing, the average annual turnover ratio in the domestic
market increases from 65% to 89%.
64
Bancel and Mittoo, in a survey of 305 European
companies cross listed on foreign exchanges, report that the most perceived benefit of cross-
listing is the increased visibility and prestige.
65
A cross-listed market becomes more credible
56
Coffee J (2002) 13.
57
Domowitz I, Glen J & Madhavan A (1998) 260.
58
Pagano M, Randl O & Roell A (2001) 777.
59
Licht A (2003) 144.
60
Baker H (1992) 219.
61
King M & Mittoo U (2007) 60.
62
King M & Mittoo U (2007) 72.
63
Fernandes N & Ferreira M Does International Cross-Listing Really Improve the Information Environment?
(2005) 2.
64
Smith K & Sofianos G The Distribution of Global Trading In NYSE-listed Non-U.S. Stocks (1996) NYSE
Working Paper 96-06.
65
Bancel F & Mittoo U (2001) 218.
18
by providing information to the local capital market and, in turn, this continuous flow of
information allows the capital market to make faster and more accurate decisions.
66
Therefore, firms and domestic markets participate in cross-listings in the quest for increasing
visibility of stock exchanges and firms.
1.3.4 Financial Gains
Firms and domestic markets participate in cross-listings for financial gain motives. Thus,
cross-listing is regarded as a means for lowering a market's cost of capital, that is, for
enabling markets to get more money from investors when they offer their stock to the
public.
67
It is noted that this effect stems from segmentation gains and diversification gains.
Segmentation is whereby foreign listing allows the local stock markets to become part of the
global portfolio.
68
Moreover, cross-listings bring foreign stocks closer to investors and offer
several other straightforward advantages that stem from lower transaction costs.
69
Stulz
submits that cross-listings provide financial gains by enabling markets to get more money
from investors when they offer their stocks to the public.
70
It is evident that cross-listed
domestic markets benefit from a lower cost capital and raise more external funds after they
enter the foreign markets.
71
However, criticism levelled against market segmentation is that,
it cannot explain the time-series pattern of listings.
72
For instance, with greater market
integration over time, net benefits of a listing should diminish since the cost of capital for
companies is increasingly determined globally.
73
Hence, it is argued that there should have
been a reduction in cross-listings instead of an increase.
74
1.3.5 Marketing Motivations
Another reason that pushes domestic markets and firms to participate in cross-listings is
marketing motivations. It is claimed that cross-listings creates greater market demand for the
66
Rock E Coming to America? Venture Capital, Corporate Identity and U.S Securities Law (2002) University of
Pennsylvania, Institute for Law & Economic Research Paper No.02-07, 719.
67
Stulz R `Globalisation, Corporate Finance and the Costs of Capital' (1999) 8 Applied Corporate Finance 12.
68
King M & Mittoo U (2007) 62.
69
Licht A (2003) 144.
70
Stulz R `Globalisation, corporate finance, and the cost of capital' (1999) 12 Journal of Applied Corporate
Finance 8.
71
Hail L & Leuz C `Cost of Capital Effects and Changes in Growth Expectations around U.S. Cross-Listings'
(2009) 93 Journal of Financial Economics 428.
72
Karolyi G The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom
(2004) 13.
73
Karolyi G (2004) 13.
74
Karolyi G (2004) 13.
19
market's products as well as its securities.
75
Domestic markets do cross-list their capital
markets as a tool to signal their transparency and private information; hence, they also try to
deliver a positive signal of capital markets' value to outside investors that they are high-value
or high-growth capital markets.
76
Cross-listings attract positive publicity in the foreign
market. However, a good marketing campaign may bring about the same outcome.
77
Therefore, it is evident that the drive for marketing motivations is one of the reasons domestic
markets and firms participate in cross-listings.
1.3.6 Bonding
Cross-listing in a foreign market acts as a bonding mechanism used by firms that are
incorporated in a jurisdiction with poor investor protection and enforcement systems to
commit themselves voluntarily to higher standards of corporate governance.
78
In this way,
firms attract investors who would otherwise be reluctant to invest. Bonding refers to the costs
of liabilities that an agent or entrepreneur will incur to assure investors that it will perform as
promised, thereby enabling it to market its securities at a higher price.
79
The bonding
hypothesis suggests that cross-listings help capital markets to improve their corporate
governance and protect minority shareholder interests by reducing the agency costs of
controlling shareholders.
80
In addition, bonding mechanisms also include submitting to
reputational intermediaries in the target jurisdiction, such as securities analysts, investment
bankers, auditors and exchanges.
81
Cross-listings involve bonding, which causes markets to
adhere to superior regulatory and governance standards.
82
Firms often cite the desire for
improved corporate governance as one of the motivations for cross-listings on foreign
exchanges.
83
Fernandes and Ferreira suggest that, an improvement in governance stimulates
investors' incentives to collect private information and thereby work to make stock prices
more informative.
84
Conversely, an improvement in price information may be one channel
75
Roosenboom P & Van Dijk M `The Market Reaction to Cross-Listings: Does the Destination Market Matter?'
(2009) 33 Journal of Banking and Finance 1898.
76
Fuerst O A theoretical analysis of the investor protection regulations argument for global listing of stocks
(1998)43 Yale University Working Paper.
77
Durand R, Gunawan F & Tarca A `Does Cross-Listing Signal Quality?' (2006) 2 Journal of Contemporary
Accounting & Economics 172.
78
Roosenboom P & Van Dijk M (2009) 1899.
79
Coffee J (2002) 11.
80
Bhumisirikul T & Supattaraku S (2011) 522.
81
Coffee J (2002) 15.
82
Durand R, Gunawan F &Tarca A (2006) 171.
83
Ayyagari M (2004) 1.
84
Fernandes N & Ferreira M `Does International Cross-Listing Improve the Information Environment?'(2008)
88 Journal of Financial Economics 216.
20
through which a cross-listing attenuates agency problems between managers and
shareholders.
85
In doing so, markets provide a clear signal to shareholders that they intend to abide by higher
standards than they would otherwise do in their home market.
86
Thus, it is evident that the
increased disclosure and monitoring associated with the cross-listing acts as a bonding
mechanism for controlling shareholders for less expropriation of market resources.
87
Doidge
et al., show that cross-listed markets are valued more than non cross-listed markets because-
the higher disclosure requirements, which usually occur in cross-listings programmes, reduce
the opportunity to extract private benefits for controlling shareholders.
88
At the same time the
bonding hypothesis will constrain insiders of the cross-listed markets from trading on private
information, particularly if foreign legislation is tighter than the domestic insider trading
rules.
89
Cross-listings can be a tool for markets to signal to their investors that they are more willing
to protect minority rights as corporate governance rules are stronger abroad.
90
Thus, it is
argued that markets in weaker protection for minority shareholder countries are more likely
to bond themselves by cross-listing in markets with stronger protection for minority
shareholders, such as the NYSE.
91
Cross-listing in a country with better accounting standards
allows the market to pre-commit to greater transparency and thereby reduce the monitoring
costs of its shareholders and their required rate of return.
92
Litch contends that the bonding
hypothesis is completely unfounded, and asserts that instead of bonding most issuers of
foreign securities may actually be avoiding better governance.
93
Therefore, firms participate
in cross-listings because of enhanced corporate governance and bonding associated with
cross-listings.
85
Lel U & Miller D `International Cross-Listing Firm Performance, and Top Management Turnover: A Test of
the Bonding Hypothesis' (2009) 64 Journal of Finance 1897.
86
Durand R, Gunawan F & Tarca A (2006) 171.
87
Bris A, Cantale S & Nishiotis G (2007) 320.
88
Doidge C, Karoyli G & Stulz R `Why are foreign firms that are listed in the U.S worth more' (2004) 71
Journal of Financial Economics 217.
89
Korczak A & Lasfer M Does Cross-Listing Mitigate Insider Trading (2006) 6.
90
Wang C (2008) 19.
91
Reese W & Weisbach M `Protection of minority shareholder interests, cross-listings in the United States, and
subsequent equity offerings' (2002) 66 Journal of Financial Economics 65.
92
Pagano M, Randl O & Roell A (2001) 779.
93
Licht A (2003) 147.
21
1.3.7 Increased Analyst Coverage
It is important to note that an improved information environment associated with cross-
listings is one of the reasons why domestic markets and firms are participating in cross-
listings. Ammer et al. submits that information disclosure provides the primary influence on
foreign cross-listing shareholding.
94
Thus, the better information environment is associated
with the increased returns and the higher valuation of the cross-listed market.
95
One strand of
literature suggests that more analyst coverage and more accurate earnings forecasts indicate
an improved information environment.
96
Hence, it is observed that the analyst coverage
hypothesis, which predicts that an increase in trading activity resulting from cross-listings
induces entry of analysts.
97
Furthermore, cross-listings bring the cross-listed markets to the
attention of more investors and lead to more analyst and media coverage.
98
Also, Ahearne et
al. contend that cross-border listings mitigate the information barriers by stimulating local
market media and analyst exposure in the foreign market.
99
Baker et al. points out that,
cross-listings on the NYSE are associated with greater analyst coverage and heightened
media attention.
100
Analysts can reasonably be viewed as financial watchdogs that should be
at least as skilful as public regulators in uncovering financial chicanery, and hence a market
that subjects itself to their scrutiny is arguably bonding its promise to make full and fair
disclosure.
101
Similarly, a recent study finds that as foreign stocks cross-list in the United
States, they obtain significantly increased coverage by securities analysts and, as an apparent
result, forecasts of their future earnings become more accurate relative to forecasts of markets
that do not cross-list.
102
Furthermore, market value increases in direct response to increased analyst coverage. The
improvements in a market's information environment provides investors with more public
information, allowing them to better evaluate the impact of firms' investment decisions on
94
Ammer J, Holland S & Smith D et al Look at Me Now: The Role of Cross-Listing in Attracting U.S. Investors
(2005) International Finance Discussion Paper No. 815: Federal Reserve Board.
95
King M & Mittoo U (2007) 8.
96
Healy P, Hutton A & Palepu K `Stock performance and intermediation changes surrounding sustained
increases in disclosure' (1999) 16 Contemporary Accounting Research 485.
97
Domowitz I, Glen J & Madhavan A (1998) 221.
98
Baker H (1992) 219.
99
Ahearne A, Griever W & Warnock F `Information Costs and Home Bias: An analysis of U.S Holdings of
Foreign Equities' (2004) 62 Journal of International Economics 324.
100
Baker K, Nofsinger J & Weaver D `International Cross-Listing and Visibility' (2002) 37 Journal of Financial
and Quantitative Analysis 495.
101
Coffee J (2002) 14.
102
Coffee J (2002) 14.
22
future cash-flows.
103
Lang et al. show that the earnings forecasts of cross-listed capital
markets are superior to those that do not cross-list.
104
This increase in information associated
with cross-listings is helpful in making the capital market attractive to more potential
buyers.
105
It is submitted that cross-listings is a vehicle to reduce information asymmetries
between market insiders and outsiders through more disclosure.
106
Hence, it is clearly evident
that countries participate in cross-listings because of the improved information environment
associated with increased analyst and media coverage markets on capital market reactions to
the cross-listing decisions.
107
This, in turn, may lead to lower cost of capital.
Even though, the evidence so far suggests a positive link between the information
environment and cross-listing, the association is not clear-cut for various reasons. Sarkissian
and Schill argue that overseas cross-listings reflect rather than reduce the information barriers
that lead to investor home bias in international investment.
108
Rather, they observe that
countries tend to cross-list in those foreign markets where the information barriers are already
low; for instance countries that share large trade, cultural ties, and a similar industrial
structure as their home market and are close geographically.
109
Again, it is contended that
analyst activity is not a good proxy for private information trading because analysts are
showcasing devices and do not possess significant private information.
110
Nevertheless,
increased analyst coverage fosters the production of industry and market wide information
and dampens market-specific return variation.
111
1.4. HOW CROSS-LISTINGS CAN CONTRIBUTE TO A REGIONAL
EXCHANGE IN SADC AS A LEAD-IN TO REGIONAL MARKET
INTERGRATION
Capital market development literature proposes that cross-listing is important in fostering the
regional markets integration of SADC's national stock exchanges. Regional market
integration refers to a market driven and institutionalised process that broadens and deepens
103
Foucault T & Fresard L Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis
(2012) 32.
104
Lang M, Lins K & Miller D `ADRs, Analysts and Accuracy: Does Cross Listing in the U.S Improve a Firm's
Information Environment and Increase Market Value?' (2003) 41 Journal of Accounting Research 317
105
Ayyagari M (2004) 11.
106
Lang M, Lins K & Miller D (2003) 317.
107
Karolyi G (2004) 23.
108
Sarkissian S & Schill M `The Overseas Listing Decision: New Evidence of Proximity Preference' (2004) 17
Review of Financial Studies 769.
109
Sarkissian S & Schill M (2004) 770.
110
Roulstone D `Analyst following and market liquidity' (2003) 20 Contemporary Accounting Research 5.
111
Fernandes N & Ferreira M (2005) 3.
23
financial links within a region.
112
Thus, cross-listing is a form of regional market integration
scheme that is an important strategic and practical vehicle to help SADC's national stock
exchanges to integrate themselves into the world economy.
113
Mwenda highlights the
importance of cross-listings by stating that SADC's regional market integration could be
achieved through cross-listings.
114
As a result, cross-listings will facilitate the development
of more efficient and competitive capital markets in the SADC region. This will help to ease
the liquidity problems of SADC's national stock exchanges, especially the Lusaka, Swaziland
and Mozambique stock exchanges.
115
Therefore, SADC's regional market integration through
regional cross-listings will facilitate cross-border equity investments by firms and operations
between stock exchanges under existing market arrangements.
116
It is important to note that regional integration of capital markets in the SADC region by
cross-listings will allow savings to be pooled across the region; reduce costs and increase
information sharing among members; diversification of risks; enhanced competition and
innovation across financial institutions; wider choices of financial products provided to
regional and foreign investors; and more integration into the global economy facilitated by
increased attractiveness of markets.
117
Also, increased regional financial integration as a
result of cross-listings enhances economic performance in the SADC region.
118
The regional
financial integration of the national stock exchanges of southern Africa is vital because it
bears strong implications for financial stability.
119
The establishment of regional market
integration in the SADC region through cross-listing is significant, in that integrated markets
would reduce costs, facilitate capacity building, and provide regional and international
services and infrastructure.
120
112
Linn J & Wagh S Regional Financial Integration: Its Potential Contribution to Financial Sector Growth and
Development in Sub-Saharan Africa (2008) 3 International Monetary Fund High-Level Seminar.
113
Francois C & Subramanian A `Beyond Trade: Regional Arrangements as a Window on Globalisation' in Z
Igbal & Khan M (e.d)
Trade Reform and Regional Integration in Africa (1998) 361.
114
Mwenda (2000) 136.
115
Mwenda (2000) 136.
116
Onyuma, Mugo & Karuiya (2012) 95.
117
Irving J (2005) 4.
118
Adebola S & Dahalan J `An Empirical Analysis of Stock Markets Integration in Selected African Countries'
(2012) 2 EuroEconomica 167.
119
Yu I, Fung K & Tam C `Assessing financial market integration in Asia-Equity markets' (2010) 34 Journal of
Banking & Finance 2874.
120
Adebola S &Dahalan J (2012) 169.
24
It is argued that cross-listed securities have always had a significant role in stock market
development.
121
Hargis alludes to the role of cross-listing in development by stating that
regional cross-listing has been shown to transform a segmented local equity market from
equilibrium of low liquidity and market capitalisation to an integrated market with high
liquidity and market capitalisation.
122
Many proponents of stock market development have
argued that cross-listings can contribute positively to economic growth by increasing and
improving the allocation of savings and investment.
123
Also, stock market development
facilitates price discovery, price information content, and transmits signals to various stock
holders in the market; which, in turn, facilitates decision making, thus allowing allocation of
resources to their best use.
124
This is especially important in the SADC context whose
economies before liberalisation were characterised by financial repression which inhibited
price signals.
125
The regional integration of stock exchanges in the SADC region through cross-listing is
significant in that it is a means of overcoming the size and liquidity problems of existing
exchanges, much more quickly than if these problems were to be overcome by the organic
growth of national exchanges.
126
Thus, given the small, fragmented structure of SADC's
national financial markets, the most empiric importance of regional market integration in the
SADC region is that it increases market size.
127
Moreover, it is a means of reducing the costs
of investing in the SADC region for international investors.
128
Irving asserts that regional
integration of the national stock exchanges in southern Africa through cross-listing offers a
way of overcoming some of the impediments to development that most of them now face as
relatively fledgling and illiquid exchanges.
129
For instance, with the exception of South
Africa, the emerging stock markets in SADC are by far the smallest of any region in terms of
the number of listed companies.
130
In 2012, 23 companies were trading in Botswana, 8 in
121
Cozier J
The Impact of Cross-border listing on the Stock Markets of Barbados, Jamaica and Trinidad &
Tobago (unpublished PH.D thesis, St Augustine University, 2010) 5.
122
Hargis K (2000) 101.
123
Levine R & Zervos S `Stock Market Development and Long- Run Growth' (1996) 10 World Bank Economic
Review 267.
124
Misati R (2006) 15.
125
Misati R (2006) 15.
126
Jefferis K & Mbekeani K (2000) 11.
127
Linn J & Wagh S (2008) 8.
128
Jefferis K & Mbekeani K (2000) 11.
129
Irving J (2005) 20.
130
Hoover R `Investing in Africa' available at http://www.investinginafrica.net/african-stock-markets (accessed
24 January 2013).
25
Swaziland, 3 in Mozambique, and 13 in Malawi.
131
Hence, it is contended that only a SADC
regional stock exchange can help to increase the assets and number of listed companies on a
single SADC's national stock exchange to a level compared to that of leading emerging
markets in other parts of the world.
132
In addition, SADC's regional financial integration will
help small financial markets like Swaziland, Malawi, and Mozambique to take advantage of
the systematic scale economies that accrue to larger systems.
133
SADC's regional financial
integration is important because it benefits countries by inducing foreign direct investment
flows and enabling local financial institutions to grow into regional, continental, and,
eventually, even globally players in financial markets.
134
Another importance of cross-listing is that it helps to facilitate the integration of SADC's
national stock exchanges and the creation of a SADC regional stock exchange. It is argued
that with a regional stock exchange, southern Africa will be able to participate in and to
benefit from the growing international integration of stock markets.
135
Moreover, a regional
stock exchange would be more conspicuous and would make it easier and faster for southern
African funds to be floated on international markets.
136
Such a market, as opposed to several
small individual national markets, would make the SADC`s region stocks more accessible to
foreign investors.
137
Cross-listings would help member exchanges of SADC to be competitive
both in the region and on the international stage.
138
With heightened competition between
national markets, these markets will be compelled to improve their operations. Therefore,
cross-listing is an important step in creating a SADC regional stock exchange, given that
regionalising the critical regulatory legal and accounting ancillary services may not
131
Hoover R `Investing in Africa' available at http://www.investinginafrica.net/african-stock-markets (accessed
24 January 2013)
132
Sheriff M Africa Capital Markets: Challenges & Opportunities (1999) 1 African Affairs Correspondent
Reports.
133
Bossone B & Lee J `In Finance Size Matters: The "Systemic Scale Economies" Hypothesis' (2004) 51
International Monetary Fund Staff Papers 19.
134
Mah'moud M, Mougani G & Zhang J et al. Financial Sector Integration In Three Regions of Africa (2010)
30.
135
Bradley E (1999) 1.
136
Bradley E (1999) 3.
137
Hoover R `Investing in Africa' available at http://www.investinginafrica.net/african-stock-markets (accessed
24 January 2013).
138
Mmieh F & Frimpong N `The Making of a Sub-Saharan African Success Story: The Case of Cross-Border
Listing of Trust Bank Limited of the Gambia on the Ghana Stock Exchange' (2009) 51 Thunderbird
International Business Review 382.
26
necessarily be so easily achieved outside the framework of the more effective and deeper
regional integration arrangements.
139
1.5 CONCLUSION
From the foregoing discussion it is concluded that, the concept of cross-listings dates back to
the nineties. It has been understood that it can bring greater efficiency, synergies, and
economies of scale; attract foreign flow of funds; foster risk sharing and portfolio
diversification; act as impetus to financial sector reforms, thereby broadening the
competitiveness of international financial systems and minimising the risks of financial
instability; facilitate capital market development; and lead to economic growth.
It is clear that domestic markets and firms participate in cross-listings due to the following
reasons: to their expand investor base, to increase stock liquidity, to improve the terms on
which they can raise capital, to increase the visibility of stock exchanges, and to achieve non-
financial benefits such as increasing customer base by broadening product recognition
amongst investors of the host country. The significance of cross-listing is that it is a form of
regional market integration scheme that is an important strategic and practical vehicle to help
SADC's national stock exchanges to integrate themselves into the world economy.
139
Oyejide T Policies for Regional Integration in Africa (2000) 20 African Development Bank Economic
Research Papers No. 62.
27
CHAPTER TWO
LESSONS FROM WEST AFRICA AND EAC
2.1 INTRODUCTION
Considering the various possible options of integrating stock markets, it will be interesting to
look at the lessons that may be learnt from experiences in West Africa and EAC to advance
the path towards a SADC regional stock exchange. Even if member countries of the SADC
region chose a different itinerary, from that of these regions, it is a well-known fact that these
stocks markets have a well-established practice in the field. Serious lessons can also be learnt
on how to promote stock market integration in the SADC and to lay a solid foundation for the
creation of the SADC regional stock exchange.
This chapter firstly outlines the requirements for a proper legal and regulatory framework for
the regional integration of capital markets. Secondly, it elucidates the benefits and challenges
of regional financial integration. The final part focuses on the lessons from other regions such
as West Africa and the East African Community (EAC). Concluding remarks are given at the
end to sum up important areas addressed by the whole chapter.
2.
1.1 The Requirements for a Proper Legal and Regulatory Framework for the Regional
Integration of Capital Markets
A sound legal and robust regulatory framework is critical for the competent functioning of a
regional stock market. It acts as a bulwark against the backdrop of a financial or economic
crisis, and provides clarity and confidence for market players and consumers alike.
140
The
preconditions for a sound legal and robust regulatory framework for a regional stock market
consists of: the harmonisation of legislation, such as bankruptcy, listing and accounting laws;
the establishment of regional self-regulatory agencies and regulatory commissions;
coordinated monetary arrangements; and harmonised reporting standards.
141
In particular, the
tax treatment of investments must be harmonised, since tax policy is an important incentive
or disincentive both for issuers and investors.
142
Moreover, effective regulation for cross-
listings requires harmonising corporate governance standards, common standards for stock
140
Messrs, Flemin & Balio `et al' Financial Sector Assessment: A Handbook (2005) 5.
141
Senbet L & Otchere I (2008) 23.
142
Senbet L The Development of Capital Markets in Africa: Constraints and Prospects (1997) 44 United Nations
Economic Commission for Africa Ministerial Conference.
28
brokers, and national rules for capital gains, withholding taxes and transaction costs.
143
Therefore, the preconditions for the robust regulation of regional exchanges serve as the
foundation for adequate access to sustained stock market development and stability.
2.
1.2 Investment Code
A sound and robust regulatory framework for regional exchange requires the creation of a
common investment code; such a code is fundamental to the efficient operation of securities
trading and investment across borders within the SADC region.
144
This investment code,
together with the municipal laws of SADC member states, can provide legal rules on
securities regulation at the regional level.
145
In order to be effective, the common investment
code would have to be adopted in member states' national legislation, making it binding on
all member states, and provisions of this code must take precedence over municipal laws of
SADC member states.
146
Furthermore, an efficient legal and regulatory framework for
regional exchanges requires the institution of a regional supervising authority, which might
be either private or public, charged with responsibility for off-site analysis of adherence to
prudential rules and regulations on a regional basis.
147
A regional supervising authority must
be an independent, quasi-judicial regulatory agency with the responsibility for administering
the SADC securities exchange laws.
148
The regional regulatory agency must be politically
independent and not subject to political interference; such independence is vital for consumer
and industry credibility.
149
Independence acts as an incentive to the regulator to adopt best
practices of corporate governance and accountability.
150
2.
1.3 Supervisory Authority
The regional supervisory authority must be well-equipped with appropriate standards and
regulations, as well as human capacity in order to establish its credibility.
151
Thus, the
supervisory authority must be adequately resourced with skilled personnel in order to match
143
Irving J (2005) 20.
144
Mwenda K Securities Regulation and Emerging Markets (2000 100.
145
Mwenda K Securities Regulation and Emerging Markets (2000) 100.
146
Irving J (2005) 19.
147
Aryeetey E `The Prospects and Priorities of Regional Integration in Sub-Saharan Africa' in Teunissen J (ed)
Regional Integration and Multilateral Cooperation in the Global Economy (1998) 148.
148
Mwenda K Legal Aspects of Financial Services Regulation and the Concept of a unified Regulator (2006) 19.
149
Llewellyn D Institutional Structure of Financial Regulation and Supervision: Basic Issues (2006) 9.
150
Mwenda K (2006) 19.
151
Aryeetey E (1998) 148.
29
the skills of those they are regulating.
152
Skilled personnel such as lawyers, accountants,
financial analysts, and examiners, investigators, economists and other professionals must be
employed by the supervisory authority.
The supervisory authority would also serve the purpose of a clearing-house of information;
promoting the harmonisation of standards in regulation, disclosure, tax, and accounting; and
encourage the interchange of ideas and experiences.
153
In addition, the regional supervisory
authority will be responsible for enforcing reporting requirements where listed companies are
required to immediately publish any new information which is likely to have a considerable
effect on the stock market price.
154
Regular disclosure, transparency and enforcement form an
integral part of regulation and supervision.
155
Important disclosure requirements include
relevant information with regards to transactions, accounting, and the identity of the ultimate
beneficial owners. These must be simple and supportive of the legal and accounting
framework.
156
The regional regulatory authority must also criminalise or at least penalise the
taking advantage of inside knowledge and unauthorised passing on of inside information.
157
As a result, ongoing disclosure obligations would protect investors where, for instance,
information disclosed on another stock market is no longer up to date.
The presence of a regional supervisory authority is important in ensuring effective
enforcement.
158
Enforcement essentially requires compliance and the ability to prosecute.
Enforcement procedures need not be long, cumbersome and expensive.
159
Such enforcement
can also be complemented by effective private laws on contracts and dispute resolutions.
160
In addition, the supervisory authority would require a clear definition of the scope of
government supervisory activities; securities market self-regulation, adequate rules and
regulations for brokers, underwriters and other operators of the stock market.
161
The powers
and duties of the regional supervisory authority must supersede and have precedence over
152
Llewellyn D (2006) 8.
153
Bradley E (1999) 14.
154
Mwenda KK `Legal Aspects of Unified Financial Services Supervision in Germany' (2003) 4 German Law
Journal 1028.
155
Friedman B & Grose C Promoting Access to Primary Equity Markets: A Legal and Regulatory Approach
(2006) 23 The World Bank Policy Research Working Paper No. 3892.
156
Friedman B & Grose C (2006) 23.
157
Mwenda K German Law Journal (2003) 1030.
158
Yartey C & Adjasi C (2007) 25.
159
Yartey C & Adjasi C (2007) 25.
160
Lopez-de-Silanes F A Survey of Securities Laws and Enforcement (2004) 32 The World Bank Policy
Research Working Paper No.3405.
161
Bradley E (1999) 14.
30
those of the national competent authorities. Should disputes arise, the regional regulator's
decisions would be binding on the signatories.
162
The means of implementing the regulator's
decisions would be left to member states and their individual stock markets.
163
Each
participating country would have to designate an agency that would ensure that the
regulator's decisions are adopted and implemented.
164
The regional regulator's decisions
would have the effect of local law and would be enforced by any regulatory authority.
In addition, each country's regulator would select the method of implementation that best
suits its national system of regulation as well as its customs.
165
Such an agency would then
report back to the regional regulator regarding the measures taken in compliance with the
regional regulator's decisions. The regional competent authority must be satisfied that the
measures meted out to culpable parties by competent authorities in other countries are
satisfactory. For instance, both the European Economic Community (EEC) and the World
Trade Organisation (WTO) utilise this kind of system.
166
The EEC Commission and the
WTO panels render their decisions and leave it to the respective state parties to develop the
means to implement these decisions, and this system has proved successful thus far.
167
Mwenda submits that, the common investment code must be binding on all SADC member
states and it must be adopted in the legislation of the member states.
168
Such an approach
would enable the courts of law in the SADC member states to apply regional law with less
difficulty. It is submitted that disputes on public distribution of securities on the regional
stock market could be settled by a regional securities regulatory body, with a right of appeal
being allowed to the SADC Tribunal Court.
169
Therefore, legal and robust frameworks are of
great importance in influencing the manner in which companies can access external finance.
2.
1.4 Harmonisation
The first precondition of an effective legal and robust regulatory framework for regional
capital markets integration is the harmonisation of legislation. Harmonisation is the process,
through which different states adopt identical laws-by bridging the gap between the rules. It
induces the creation of norms and principles to be used as rules and guidelines as well as the
162
Mwenda K Murdoch University Electronic Journal of Law (2000) 104.
163
Mwenda K (2006) 19.
164
Llewellyn D (2006) 8.
165
Mwenda K (2000) 151.
166
Bradley E (1999) 14.
167
Bradley E (1999) 14.
168
Mwenda K Murdoch University Electronic Journal of Law (2000) 104.
169
Mwenda K (2000) 153.
Details
- Pages
- Type of Edition
- Erstausgabe
- Year
- 2014
- ISBN (eBook)
- 9783954897216
- ISBN (Softcover)
- 9783954892211
- File size
- 1.4 MB
- Language
- English
- Publication date
- 2014 (February)
- Keywords
- Capital markets SADC regional stock exchange Cross-listings Regional integration Financial markets integration
