Presentation – December 2016

Why interconnectivity? Many African securities exchanges need more liquidity

Too few issuers/listings, too few opportunities to invest in (lots of investment capital is looking for opportunities)

Not enough secondary trading for buyers or sellers to get fair price and desired timing

Markets are inefficient, less desirable and have high transaction costs, increased cost of capital for issuers

Local markets are best for needs of local economies

Instead of merging exchanges, technology means linkages between national exchanges

Combine markets to get more opportunities to invest and more investors

CoSSE interconnectivity aims Enterprises can raise capital across SADC if

they are approved to raise on one exchange

Investors on one exchange can buy shares seamlessly on other exchanges within SADC region

The region’s capital markets become more liquid and more efficient

Global interconnectivity initiatives Association of South East Asian Nations - ASEAN Trading Link

2011 Single market access for 7 stock exchanges

First - Bursa Malaysia, Philippines Stock Exchange, Stock Exchange of Thailand and SGX-ST (equities of Singapore Exchange)

CEESEG AG owns 4 stock exchanges of Budapest, Ljubljana, Prague and Vienna as equal subsidiaries

SEE, backed by the European Bank for Reconstruction and Development (EBRD), links 3 Balkan stock exchanges

Mercado Integrado Latinoamericano (MILA) founding members Lima Stock Exchange (Perú), Santiago Stock Exchange (Chile) and Colombia Stock Exchange

Trading lower than expectations (partly due to post-trade issues)

African interconnectivity East African Community interconnectivity project ongoing

(interconnectivity hub in Arusha) – Nairobi, Dar es Salaam, Uganda, Rwanda

Bourse Régionale des Valeurs Mobilières SA (BRVM) headquarters in Abidjan One of the world’s most integrated regional exchanges Links 8 francophone countries (Benin, Burkina Faso, Guinea-

Bisssau, Côte d’Ivoire, Mali, Niger, Sénégal and Togo)

BRVM joins Ghana, Nigeria and Sierra Leone stock exchanges in West African Capital Market Integration Council (WACMIC), set up 2013

African Development Bank and African Securities Exchanges Association working on African Exchanges Linkage Project (AELP) to link Johannesburg, Nairobi, Casablanca and Nigerian stock exchanges.

Interconnectivity and SADC SADC Common Agenda (Article 5 of the SADC Treaty)

Regional Indicative Strategic Development Plan (RISDP) refers specifically to CoSSE (para 5.3.2)

Targets of RISDP operationalized through SADC protocols Finance and Investment Protocol (FIP) 2006 (especially Chap 7,

Articles 13 & 14 and Annex 11): Objective to facilitate financial integration through developing a harmonized securities market environment; establish “an integrated real time network of the national securities markets within SADC; pave the way towards cross-border listings and trading and investments.. facilitate the process of financial integration within the Region”.

Other SADC development - SIRESS SADC Committee of Central Bank Governors (CCBG)

developed + implementing SADC Integrated Regional Electronic Settlement System (SIRESS).

First transaction July 2013

73 banks participating (includes 6 central banks)

9 countries participating

Volumes of payments much larger than initially expected – by Jan 2016 had settled ZAR1.8 trillion ($114bn), total 381,879 transactions. Peak month was 24,960 transactions in Oct 2015, ZAR99bn in Sep 2015.

CoSSE previous work on interconnectivity Has been working on interconnectivity since 2008-9

Interconnectivity Project Steering Committee proposed technology hub solution

Could not raise funding

CoSSE business plan 2012 proposed new capital structure

2 or more exchanges could take the lead

Equity/for-profit investment structure to involve DFIs

Did not go forward.

CoSSE principles for interconnectivity (since 2008) Exchanges operate different trading, clearing and settlement

platforms Exchanges regulate their own listings but exchanges’ instruments

should be visible to other markets. Exchanges regulate their own trading, however, accessibility of

trading on other markets is requirement Exchanges will comply with individual country legislation and other

exchanges’ company law, insider trading legislation, etc.

Exchange control in various countries, Common Monetary Area is not considered in timeline Exchanges will trade and settle in their own currency Securities will be held in the country of register

Exchanges to decide on data sales independently and manage individually. However, market data should be visible internationally

progress 2015-2016

CoSSE interconnectivity African Development Bank funded consultant 2015-16

Update 2012 business plan and 2008-9 project

Discuss way forward with exchanges and stakeholders (regulators, stockbrokers, investment institutions, etc)

Met 9 potential IT suppliers

Stock exchange trading systems and smart order routers

Broker network providers

Data vendors

Investigate alternatives in line with business needs

CoSSE Interconnectivity project 2 Review international (ASEAN, MILA, CEESEG, SEE, etc in

Europe) and African linkages (EAC, WACMIC) and lessons

Review changing landscape, including SIRESS (SADC cross-border payment system)

Recommendations regarding way forward, including relations with SADC including CISNA, CCBG

Report adopted by CoSSE in Windhoek March 2016

Background to recommendations Cross-border trading already possible

Client in one country can tell broker to place order with broker in another country

Little volume for this

Obstacles to more trading? Information – information about prices, trading, opportunities

Contacts between brokers and others, ease of opening accounts, etc

Regulatory and risk structures including sharing risks across borders, institutional regulations (domestic assets/prudential limits for pension/insurance funds – 5% in some countries), exchange controls

Market opportunities, lack of attractive investments

Post-trade, clearing and settlement, custody, etc

3 technology options 1. Information providers –

buy-side and stockbroker traders see data on their trading screens call each other/use messaging to trade, book through exchange.

2. Network provider s and broker order management networks – share broker data screens, straight-through processing (STP) from buy-side clients (either

approve or sponsored direct market access/DMA).

3. Smart order router networks and exchange technology suppliers used for linkages in Latin America and South-East Asia exchanges joint venture owns + operates technology sends orders from brokers/automated trading system/ATS) via

gateways on one exchange to another exchange. East Africa similar approach to be owned/operated by the East

African Community

Technology issues How do systems fit with existing stock exchanges?

FIX protocol is global standard for pre-trade orders (SWIFT is standard for post-trade transfers of value)

Existing networks already in use by

Investment institutions local and foreign

Stockbrokers local and foreign

Saves on new buy-in and adoption

Windhoek decisions

(March 2016)

Exchange timeframes Member Readiness to

Integrate

Option for fees Comments

Botswana Long term % of Txn value TBA

Malawi Long term % of Txn value No Infrastructure

Mauritius Short term Per Trade TBA

Mozambique Long term Per Trade Need for a proper legal framework

Namibia Immediate % of Txn value

Zambia Long term % of Txn value Need for a proper legal framework

South Africa TBA Per Trade Will depend of the nature of the implementation

Tanzania Immediate % of Txn value

Based on questionnaire sent to members (from SADC-CoSSE Project Final Report April 2015)

CoSSE recommends 1 – Stockbroker network Exchanges inform stockbrokers and “buy-side” (institutional

investors)

Linkages

CoSSE and SADC organs to encourage and facilitate links between stockbrokers in different countries

Investigate next steps – broker profiles in central database, sharing stockbroker research, capacity-building on research and cross-border trading

Stockbrokers first step in information campaign to “buy side”

Investigate if broker network technology providers can support more cross-border trading

CoSSE recommends 2 – regulatory issues Where regulatory barriers identified to cross border

trade between 2 exchanges

Regulators, central banks and others work on bilateral basis

Bilateral is supplementary and pilot for regional bodies removing obstacles

Work closely with CISNA

Includes banking, payments, funds (pension/insurance), etc

CoSSE recommends - Phase 2, in future Re-investigate feasibility of technology solution/ hub-and-

spoke

Based on feedback from brokers and Phase 1

Other exchanges to join

Relate to developments in AELP project

Concrete assumptions (user survey, commitments, track record) to update business plan

Invest in technology when business case exists.

- Next steps

The goal Enterprises, governments and others can

raise capital across SADC by listing on one exchange

Investors on one exchange can buy shares seamlessly on other exchanges within SADC

The region’s capital markets become more efficient and liquid – encourage savings, investment & integration.

Next steps Proceed with front-runner exchanges

Information exchange and stockbroker network

Identify bilateral regulatory or other restrictions/blocks

Resolve issues with regulators and Ministry of Finance, etc.

Memoranda of understanding

Investigate issues for cross-border IPOs, buy and sell orders starting from frontrunner countries.

Use bilateral progress as pilot for setting example/resolving SADC issues

Work with selected exchanges Work with selected exchanges to see way forward

Encourage information flow – create guides

Encourage broker linkages

Investigate next steps using broker networks

Information flow/exchange See if all exchanges’ data (live trading data, statistics, etc.)

can be shared to broker trading systems

Not compete with data sales (could enhance data sales for exchanges)

Create a CoSSE/SADC asset class? Create information flows about southern African assets.

Regional links - stockbrokers Build links with stockbrokers and build linkages among

brokers

Survey of stockbrokers and institutional investors to determine what they are doing and how they can go forward