In a quest to create a liquid trading environment geared at propelling the Botswana Stock Exchange (BSE) towards being an investment and trading hub, the bourse is on the verge of introducing a Market Making for all listed securities.
BSE Deputy Chief Executive Officer (DCEO), Thapelo Tsheole revealed on Wednesday morning that under Market Making, the system identifies a liquidity provider in the form of a company or individual that quotes both a buy and a sell price in a listed financial instrument or commodity held, with hopes of making profit on the bid offer spread.
Tsheole said Market-Making will ensure that there is always a trading counterpart on either the buy or sell side thus improving liquidity on the Exchange.
“The draft Market-Making rules were completed in January 2015, and are awaiting approval by Non-Bank Financial Institutions Regulatory Authority (NBFIRA),” said Tsheole.
Tsheole said the BSE has embarked on a strategy to ensure that Botswana becomes a destination of choice for investors by ensuring a robust stock exchange with quality equity, bond and alternative investments listings; a deep and liquid trading environment and world class regulatory and supervision environment. The BSE’s second in command said this strategy has culminated in the pursuit of several initiatives, the most recent of these being the introduction of Market-Making for all the listed securities.
Moreover, he said the BSE intends to implement a Security Borrowing and Lending investment instrument. Tsheole said the initiative is simply an act of loaning a stock, derivative, or other securities to an investor or firm. He said it allows for someone who has no shares and yet has an interest in dealing with the shares to actually borrow the shares from an individual or institution for a period of time, before they can be returned at an agreed fee.
However, Tsheole cautioned that unlike Market Making, which is at an advanced stage, this concept is still at an initial stage.
Furthermore, he added that the BSE wishes to attract the listings of Commercial Papers. “These are unsecured and short-term debt instruments that allow corporates to meet their current liability needs. We are currently about to complete the draft Debt Listing Rules, which include rules on Commercial Papers,” he explained.
Other notable BSE initiatives are the Serala OTC Board and of course listing of Exchange Traded Funds (ETFs). Tsheole was speaking at the launch of the new Barclays Inflation-Linked Bond Index (ILBI) (ETF). The bond ETF will give investors an opportunity to invest in the performance of a de facto South African government inflation bond benchmark index which tracks up to 10 bonds.
According to Tsheole, since the listing of the first ETF (NewGold) on the BSE in 2010, the BSE has since listed two other ETFs, namely BettaBeta and NewPlat.
“Today marks the listing of the 4th ETF on the BSE. As at last week Thursday, a cumulative 30.7 million ETF units had been traded on the BSE, yielding a cumulative turnover of P1.2 billion. This is evidence that ETFs have indeed improved the BSE’s product offering and liquidity,” he said.
The BSE plans to leverage on its expertise in introducing ETFs to introduce similar products whose underlying assets are either onshore or offshore. He said this initiative is sound given that there is excess liquidity in domestic capital markets relative to existing investment opportunities. The BSE’s strategic intent is to position itself as a regional finance and investment hub.