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An Emerging market: Bourse Régionale des Valeurs Mobilères a west african stock exchange( Télécharger le fichier original )par Jean Christian Ahoussou kouadio London South Bank University - Bachelor Business Administration 2007 |
Literature ReviewInternet Search Engine: Goggle use as a search engine with keyword as BRVM, Sub Sahara Market, and regional market. Sample of Relevant sources used: BRVM / EURONEXT / International Monetary Fund / BAD (African Development Bank) Ghana Stock Exchange / Nigerian Stock exchange / Wikipedia / ABC bourse / LeblogFinanance.com / easybourse.com / Not much books were used for this dissertation due to the topical of study, the past 10 years at least. And the access to the information was a problem for me because of the location of the organism Theory: To make the market more efficient we need an appropriate rating. With an appropriate rating investor are able to collect reliable information in order to trade on the market. The rating encircle several and more, the reform of the guarantees currently required within the framework of the regional stock market is necessary in order to support the access to the long term capital by the companies of the Union and to support its competitiveness compared to the other in particular banking sources of financing. This reform should not lose sight of the fact the mission first of the regulation of the markets to knowing, the protection of the savers. To this end, the guarantees required must be adapted to the risk of the transmitter or operation. The study to be carried out must provide us to categorize the issuers for whom an exemption of guarantee can be granted and to indicate the circumstances in which the requirement of guarantee can be partial or total, and this is where the importance of the rating agency is clear. They are independent, and have to respect an international code of ethic and conduct. In order to guarantee the safety of the savers, the procedures for action of the guarantors of the market must be harmonized and standardized. Their systems of internal and external audit will have to be reinforced. To this end, they should be able to be the subject of a rating, and, if it is necessary, to be controlled by a recognized and considered authority. The introduction of the notation in the BRVM stock market for the sovereign issuers, the financial banks and establishments, the organizations of guarantees, the companies, etc is unavoidable to meet the needs of the market and its actors. It indeed constitutes an instrument of analysis and dissemination of information as well as a tool of transparency of the quality of economic and financial information and especially a factor of development of the economies concerned. The Stock market
Each member chooses an entrance point, which is adapted to his company. Process that includes authorities of the national financials markets in order to facilitate the access of members to negotiation platform. A single platform for the derivatives market, A single platform for the stock market,
Each member choose an entrance point which is adapted to his company Each member choose an entrance point which is adapted to his company Since February 2005, the first, second and new market compartment disappeared to in favour of one single listing ? Euro list. a. Euro-list, the united market. On the regulated market, the values are classified by an alphabetical order. For reasons of visibility, they are arranging in 3 compartments: Ø The big values or «Blue Chips» with a capitalization of more than 1 billion of euros, Ø The intermediate value between 150 millions euro and 1 billion euro, Ø And the small values less than 150 millions euro. This was an historical modification and later the Paris Stock exchange, the Brussels, Amsterdam and Lisboan Stock Exchange are also using a single listing. The first aim of this reform was to simplify the listing organisation, because the system of several compartments was based on the nature of the society and no on their worth. That led to this point: some big capitalization was put with smaller or illiquid one due to their nature. Beyond, the effort for the simplification of the listing, Euronext company manager are looking to boost the smalls and middles market capitalization. Table of the different Euronext indices:
(c) Euronext group. We can see that companies are classified by their worth and not their nature. Structure of the market before:
New structure with Euronext:
b. Liffe, the second derivatives European market. By integrated the LIFFE, Euronext reinforce his offer in derivatives products and opened has news alliances. Other point concerning this acquisition is the diversification of the Market incomes, which can be unstable due to the volatility of the market. By purchasing the Liffe, Euronext makes a good deal in fact they have also acquired a system of transaction: Liffe Connect. That provides them the possibilities to extend or merge with other global market. With the Liffe all the derivatives market from the other Stock Market of Euronext where transferred in one entity, concerning the diversification Euronext took 3 majors contracts: The cocoa, the sugar and the coffee Robusta and at a different level: the wheat. Conclusion about Euronext and the stock market:
Euronext answered by saying that the end of the consolidation of all derivatives products in one exchange platform is effective only since 2004 and that makes the market more liquid. More they have decrease the fees on options contracts by 25 Last but not least the main problem was an administrative one, the standardisation of the different platforms' regulations from the products' expiry date to the opening time.
And today it appears that the merger between Euronext and the NYSE could be the launch of a new kind of market with a wider area of control, bigger means.. We are witnesses of the born of the bigger financial market that will ever exist for the moment.
B. Alternext a controlled market but not regulates. Year 2005 marked the Launch of Alternext in Paris, an exchanged -regulated market for small and mid sized companies. Conceived as a strategic development tool, Alternext is directly inspired by the English model AIM (Alternative Investment Market), created on June 19, 1995 by London Stock Exchange, which is a sharp success due to the flexibility of its rules and great flexibility that it offers. Keys numbers for Alternext (sources www.alternext.com): Ø Number of listed companies on 31 December 2006: 75, Ø Total Market capitalisation: 3.5 billion.
(c) Euronext group The creation of Alternext was firstly an answer to the new European regulations which reinforced the listing requirement, and secondly a response to the needs of companies who are looking for opportunities or to raise capital for their further development on the Stock market whilst benefit from simplified access condition to be quoted. It is an alternative for the companies which do not have human or financial means to be introduced in a regulated market that is why they named it «the tailor made market for SME's». At the beginning, the main aim was to become the reference market for small and medium sized companies. Alternext is offering attractive opportunities for private and institutional investors to participate in financing growth, ensuring investor protection and transparency and promoting liquidity. And more in the current context of relative lifelessness of the financial markets, the opening of the European markets at SME is likely to insufflate a new wave of dynamism on the European stock exchange place and reflates the economy.An introduction in the market provides resources for companies, in order to finance their development, and give them the possibility to set apart the competitor. It is presented as a hybrid market which is located between the new market, which does not impose any constraint of access and no protection offers to the investors and Euro list whose operating conditions are strict. With Alternext, Euronext reduced the listing requirement. The objective was to propose an adapted solution to those companies, cheap as possible with financial transparency for the investor. Organisation of Alternext:
The companies quoted on the Alternext don't have to: · Communicate their financials results on the IFRS basis. · Published their financials statements every quarter, · Or to be audited every 6 months. Their regulations for them are: · The publication of every element, which can influence the price of their shares. · Produce a financial report every 6 months, · An audited financial statements every years, · The cross of the different threshold of participation (50% and 95% of the capital) · All the corporate staff operations have to be known. More, in the purpose to protect the little shareholders in case of the cession of a pack of share, the buyer take on him to buy all shares at the same price. With Alternext, the Euronext group NV created a special adviser for all the listed companies. This partner acts as a coordinator between the issuers and the exchange at all time. He has a key role in terms of control; he is ensuring that the issuers accomplish its transparency requirements. This market was built in order to maximise the possibilities of negotiation and the trading orders. It combines a system of central negotiation where shares can be traded either continuously or by call auction and also via market makers. We have to notice that: Ø The most liquid shares (more than 2,500 trades annually) are quoted and trade continuously between 9am and 5:30pm, Ø All the other shares are traded with a daily auction at 3:30pm Ø And market maker can trade continuously all the day, markets makers are approved intermediary by Euronext, which trade on their own resources. They effectuate a bilateral transaction, and they guarantee a margin buy/sell. The points mentioned below in the table, reveal great similarities between AIM and Alternext as well on the plan of their operation as on that of the obligations required for the companies, which are listed there. AIM is characterized nevertheless by a greater flexibility from its rules from admission, and Alternext offers more guarantees to the investors by in particular imposing the obligation of setting up the procedure of guarantee of course.
c. Comparison between AIM and Alternext
UKLA = the United Kingdom Listing Authority On AIM the Nominated Adviser can be also the broker of the company PSI = Prestataire de Services d'Investissement or Investment services provider. Lock-ins = commitment to hold his share during one year for companies which not have more than two years of activity. Today, Alternext is not really big market in comparison with other market in the same sector like AIM (Alternative Investment Market) that assert about more than 2200 listing societies. The success of the Alternext depends on the number of companies, which are going to be listed; one advantage is that Alternext aim at all the companies in the euro area. But this market began with a handicap; there is no fiscal advantage on the capital gain however this legal term makes the success of AIM. More the volume of trading on the Alternext stays low; only a few companies' shares are trading in continuous. Alternext offers to SME real investment opportunities in a context of suppleness and flexibility: facilitated call with the saving for the financing of their development and their growth, increased interest of the European investors, notoriety. SME which always do not have the human and financial resources adapted have from now, the possibility to be listed on the market without undergoing the constraints related to the regulated market. One of the best achievements for Alternext is that it has been able to attract companies from varied sectors; the average turnover of the introduced companies is 18.6 M euro (12.2 M£). To set straight to their initial problem with the fiscal, corporate executives of Alternext have succeed in making adopt a new reform. A favourable tax framework founded by the law of July 26, 2005 the first measurement concerns the institutional investors: the FCPI (Fonds Commun de Placement Innovative, bonds that must be hold for 5 years under fiscal arrangements) and the FCPR (Fonds Commun de Placement à Risk, bonds that provide us to invest on non quoted companies) were authorized to include a 20 % of quoted shares of a weak capitalization, and more of their free share on 60 % and 50 % of the funds which must be invested in the non quoted one. Moreover, the market's tax was removed for stock exchange capitalization lower than 150 million euros. Lastly, the appreciations of participation will be gradually exonerated: 15 % in 2005, 8 % in 2006 and 0 % in 2007. Other measurements concern the natural person who is authorized to apply to the tax cut known as "Madelin". They can profit from a tax cut on the income corresponding to 25 % of the sums invested in Alternext within the limit of 20.000 or 40.000 euros for a married couple. This tax measurement is reserved for the introductions carried out at the time of a new issue of capital. Can also profit from this tax cut the physical people who hold 50 % of the capital of the company with dimensions and who do not resell their titles before 5 years. In conclusion: The introduction on Alternext has advantages of suppleness, flexibility, and accessibility. This market is in the process of becoming a reference for SME. The foreign investors having included/understood the interest of quotation uninterrupted on this market, Alternext deserves a detailed attention The West African Economic and Monetary Union and his market the BRVM.
A. The West African Economic and Monetary Union The West African Economic and Monetary Union (WAEMU) is characterized by the recognition of a single monetary unit, the Franc de la Communauté Financière Africaine (F.CFA), which is issued by the Central Bank of the West African States (BCEAO). The organs overseeing WAEMU operations are:
The Assembly of Heads of State and Government is the supreme organ of the Union. It decides which new members are to be admitted and makes all decisions concerning issues raised with it by the Council of Ministers. The Council of Ministers directs the Union. Two ministers represent every member state on it, but only the minister of finance is allowed to vote. The Council of Ministers unanimously adopts decisions regarding matters that arise within its sphere of competency in accordance with the provisions of the WAEMU treaty and the BCEAO statutes, as well as with those that the governments of the member states choose to submit for its examination or approval. These decisions must respect the international agreements signed by the Union's member states. The Council of Ministers defines the Union's monetary and credit policy to protect the value of the common currency and finance economic activity and development in member states. More particularly, it approves agreements between the Common Currency Issuing Institute and foreign issuing institutes in order to facilitate external regulations for member states.
B. A bite of history the market The BRVM is a regional stock exchange located in West Africa and extends in those countries. The mission of the BRVM is to organise a security market, disseminate the market information and to promote the market. The market integration by the BRVM is before everything a political will to build a common project between eight countries. This market is the bond for a future political and economical stability in the region. Hence this technical, political and institutional success to build this market combination happened in several phases:
(c)Sources wikipedia and www.brvm.org The creation of the BRVM aims to contribute to the diversification of the financial sector, to mobilize the long resources necessary to the financing of the production and the investment and finally to support regional integration. The principal objectives are: The rate of saving of the zone is at insufficient levels to support a strong and durable growth, 6,5% in 1993 and 12,9% in 1996. By the diversification of the financial products, the rise in remuneration and possibility of the development of a popular shareholding, the regional stock exchange market must create the conditions for the increased mobilization of the interior saving and the external capital The banks, faced with the need of long-term financing for the economic operators, were often forced to grant short-term loans to them. What lets appear financial imbalances for the development of the economic activity. The regional stock exchange market in its function of provider of long resources comes to regularize this situation while making it possible the banks to devote from now on to the financing in the short and medium term economy. The capitalization of the companies lets appear in the whole under marked capitalization and an insufficiency of invested capital. The stock exchange market which, by vocation, makes it possible to mobilize long capital, with like supports the actions and the obligations, offers the advisability to them of reinforcing their capitalization. The high level of the debtor rates of the banks (between 12 and 18%) and the weakness of the remuneration offered to the savers (between 3 and 5%) let appear relatively important costs of intermediation. By building a relation between offer and demand of the capital, the BRVM will allow a significant reduction of the costs of intermediation, and will offer by the same occasion a greater remuneration to the savers, at the same time, as it will imply a significant reduction of the financial expenses for the transmitters of bonds. The Regional Financial Exchange's structure is composed by two main components, which are: The Regional Council for Public Saving and Financial Markets (Conseil Régional de l'Epargne Publique et des Marchés Financiers - CREPMF). This component is representing the general interest and overseeing the security in the market. The regional securities exchange (Bourse Régionale des Valeurs Mobilières - BRVM) and a central clearing house (Dépositaire Central/Banque de Règlement - DC/BR), they have both a particular status; they are private companies, which serves the public. T The private component also includes business stakeholders, particularly brokerage firms, asset administration firms, business developers, stock market consulting firms and canvassing brokers. The BRVM is equipped with a fully integrated and modern system of trading. The central site in Abidjan provides securities quotation and trading services as well as regulation/issuing services.
Each agent has workstations in their office or at least on trading room in their national branch of the BRVM, so they can: - Enter orders for securities and send them to the central site via the satellite network, - Consult and edit the quotation result, - Consult statistical information on the BRVM and the DC/BR, - Distribute information The interactivity of this satellite platform is the key in order to have a market, which is functioning well. The principles followed in establishing the BRVM satisfy the requirement for both compliance with international standards and adaptability to the WAEMU socio economic environment. Equal access to information and the management of investors and network access costs, regardless of the economic operator's location, are key drivers. The exchange can be described as follows: A centralized exchange driven by orders, that means: The matching of bid and ask orders collected before the quotation enable to fix a security price. A daily trading session, with a fixing at 10h30 am. This session arise from the BRVM strategy. In fact at the beginning only 2 sessions of fixing 3 times a week were organised, today we are on a daily fixing. The aim is to have a real time quotation session. When operations began, the BRVM had two sections for stocks and one section for bonds: the first section for stocks is reserved for companies: Ø That can justify at least five certified annual accounts, market capitalization of over 500,000,000 CFA francs and distributed public shares of at least 20%; Ø The second section for stocks can be accessed by mid-sized companies with market capital of at least 200,000,000 CFA francs and two years of certified accounts, and committed to distributing at least 20% of their capital to the public within two years, or 15% in the event of a share capital increase; Ø The bond section can be accessed via bond loans of which the total number of shares issued is higher than 25,000 and the face value of the share is equal to at least 500,000,000 CFA francs. The BRVM has 2 sections for stock and one for bond. To be eligible for the first section, a company must satisfy the following conditions: Ø Demonstrate market capitalization equal to or higher than 500 million CFA francs (762245,09 euro); Ø Have a net revenue margin of 3% in each of the past three years; Ø Demonstrate five years of certified statements; Ø Agree to sign a market activation contract; Ø Distribute to the public at least 20% of its capital as soon as it joins the exchange; Ø Agree to publish semi-annual revenue estimates and results trends. Eligibility of a company for the second section is subject to the following conditions: Ø Demonstrate market capitalization equal to or higher than 200 million CFA francs (304898,03 euro); Ø Demonstrate two years of certified accounts; Ø Agree to sign a market activation contract; Ø Agree to distribute to the public ate least 20% of its capital within two years, or 15% in the event of a share capital increase. The mandatory section-debt instruments-is accessible to bond loans if: Ø The total number of securities issued is higher than 25,000 with a face value of at least 500 million CFA francs (762245,09 euro). To be listed or getting listed on the BRVM is the final steps in the Funding chain for business. It is a strategic long-term decision that requires excellent preparation. In order to be incorporated in the market, companies have to fulfil those requirements: Ø Sign a written agreement to respect the publication of all elements that can influence the price of the stock. This publication has to be done in the annual statement and in the BRVM's official newsletter: the BOC (Bulletin Officiel de la Cote), Ø The company have to participate at all event organized by the market, Ø Sign a written agreement to obey the rules and regulations of the BRVM. The company must mandate a financial advisor in order to apply to be listed, this financial advisor have to be certified. Once the complete application has been received, the BRVM will rule on the company's eligibility and send a copy of the application to the Regional Council of Public saving and Financial Markets for the necessary notification. The listed company has the following responsibilities: Ø Manage the regulatory framework and relations with investors; Ø Organize annual shareholders meetings, etc. The BRVM 10 comprises the ten most active companies on the regional exchange. Besides the above-mentioned general criteria, the concept of liquidity plays a key role in selecting securities:
Also, the index is revised four times a year (first Monday of January, April, July and October). The index calculation formula is: It y = (Ct / Bt) * 100 Ct I =1 = ? Pit * Nit Bt = Bt - 1 (Ct' / Ct) With: It: Index at time t Ct: Capitalization of components at time t Ct': Adjusted capitalization (to take into account capital increases or decreases and component changes) Bt: Baseline of index at time t Pit: Price of security i at time t Nit: Number of stocks of value i in circulation at time t. The index is automatically generated by the BRVM trading system and distributed after every trading session. The index is adjusted when a component issues new securities (capital increase), buys back securities in circulation (capital decrease) or is replaced in the index. The purpose of the adjustment is to neutralize the change so it does not affect the index. Reference indexes
Sector indexes
Two BRVM market indexes represent the activities of stock market shares. The BRVM composite comprises all securities listed on the exchange. The BRVM comprises ten of the most active companies on the exchange. Formulation and selection criteria for the BRVM Composite and BRVM 10 are based on the leading global market indexes, especially the FCG index of the International Finance Corporation, a World Bank affiliate. The formula for the indexes takes into account market capitalization, transaction volume per session and transaction frequency. Only common shares are used to calculate the indexes. Composition of: BRVM 10.
The concept of liquidity also plays a key role in selecting securities for the BRVM 10. For each one, the average daily transaction volume in the three months preceding the quarterly review must not be less than the median daily transaction volume for all securities. Moreover, the transaction frequency must always be higher than 50%, and the security must be traded at least one out of two times during the three-month study period. The indexes are automatically generated by the BRVM trading system and circulated after every trading session. The BRVM 10 is also reviewed four times a year (first Monday of January, April, July and October). The BRVM Composite also after every new listing is reviewed so it can keep pace with the growth of the Regional Financial Exchange. Information concerning the Bourse Régionale des Valeurs Mobilières (prices, volumes, dividend payments, financial statements of listed companies, etc.) is available via many channels, such as: Ø The official newsletter (Bulletin Officiel de la Côte - BOC) available at the end of every trading session at the BRVM head office, national branch offices and from brokerage firms; Ø The Quarterly Review available at the end of every quarter at the BRVM head office, national branch offices and from brokerage firms; Ø Information resellers with which the BRVM has signed partnership agreements, such as Reuters, and others to be announced; Ø Various private Web sites that distribute market information on their own initiative. The Dépositaire Central/Banque de Règlement S.A. (DC/BR) is a private firm independent from the BRVM with capital of 1,481,552,500 CFA francs (1527480.6275 £), 13.50% of this amount comes from WAEMU states, with the remainder distributed among brokerage firms, chambers of commerce and industry, sub-regional institutions and other private individuals and WAEMU companies. The DC/BR is responsible for holding and circulating securities. This works for both issuers and brokers certified by the Regional Council for Public Saving and Financial Markets. It serves as the clearinghouse and can hold cash accounts for traders. The role of clearinghouse has been assigned to a commercial bank in the DC/BR organization. So the DC/BR has the following missions:
The DC/BR headquarter is in Abidjan. It is represented in every WAEMU member state by a national branch office (Antenne de Bourse). Fundamentally the DC/BR is caution because the securities are hold in accounts but they are dematerialised so they can be circulated and risks associated with storing and managing them are considerably reduced. Trading operations are closed electronically on D+5 (trading day plus five business days). The DC/BR has the latest year 2000 compliant computer equipment running operations management software called Depositary 2000 (securities account management and settlement- delivery operations) that is user friendly, powerful and compliant with international standards. The BRVM and DC/BR computer systems are connected via an electronic interface so data can be sent after trading sessions under maximum security and without manual intervention As a conclusion we can say that the essential points which arise from the presentation and the activities of the money market in general, and of the BRVM in particular, are: Strengths: We are faced with a regional stock exchange from which the actors come from the various countries linked within the Economic and Monetary Union of West Africa. From this regional particularity comes out the following elements: Ø Interconnection between the states within the framework of the financing of the companies. Ø The population is high, therefore the existence of a great capacity for absorption of the market. Ø A young market, therefore a strong potential of evolution. Ø The existence of a central agent and a bank of payment. - an organized market. Weaknesses: In spite of the regional character of the BRVM, we note: Ø An insufficiency of resources generated by the market. Ø - An insufficiency of speaker and emissions. Ø - A low level of transactions. |
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