Ushering a new era for the Stock Exchange industry in Mauritius

Transcription

1 Ushering a new era for the Stock Exchange industry in Mauritius Presented by Sunil Benimadhu Chief Executive SEM Press Conference SEM Board Room

2 Presentation Outline An overview of the SEM s reform agenda since 2010 Adding a new dimension to the reform agenda A compelling trading fee structure for turnaround trades A compelling trading fee structure for corporate bonds Expectations from the new fee structures Setting the stage for a new stock exchange environment

3 An overview of the SEM s reform agenda since 2010 SEM embarked upon a fundamental reform program since 2010 with a multi-pronged objective Internationalise the Exchanges platform Position SEM as an attractive listing/capital-raising platform Broaden the spectrum of instruments listed/traded on our platform Leverage off a booming global business sector and create synergistic links between the capital markets segment & Global Business segment Contribute to the development of an integrated financial services sector and the emergence of Mauritius as an IFC of substance Contribute to the Africa strategy

4 Key components of the reform agenda Shift from an equity-centric domestic Exchange to multi-asset class international Exchange Introduction of a highly competitive and compelling listing/trading framework for -Global funds -Global Business companies -specialist debt instruments -Exchange traded funds - Structured products -sponsored/unsponsored Depositary Receipts - Junior mining/exploration companies Introduction with the CDS of a multi-currency listing, trading and settlement platform (USD, GBP, EURO, ZAR) - Potentially provides a 4% to 8% currency conversion savings to international investors trading in African securities - Hedges the international investors against African currency risks and eliminates need to resort to currency hedging instruments Introduction of the concept of remote membership to attract foreign brokers, foreign participants to our market and global order flows to SEM s trading platform Positioning SEM as an attractive capital-raising, listing and trading platform for African ventures Fundamental review of tick sizes to facilitate trading and boost liquidity Securing of a number of international recognitions to enhance the attractiveness and visibility of SEM Only Exchange in Sub-Saharan Africa (ex S.A) to be a member of the World Federation of Exchanges (WFE) Membership of WFE implies automatic recognitions of SEM by most of the WFE member exchanges Awarded the Most Innovative African Stock Exchange in 2011 by Africa Investor at the New York Stock Exchange Recognised by the UK Her Majesty s Revenue & Customs (HMRC)

5 Assessing the outcome of the reform agenda: 28 new listings since 2010 Rs 30 billion raised on the Official Market & DEM Market Cap/ GDP revolves around 80%, the highest in Sub- Saharan Africa, Ex South Africa A number of new listings from non-mauritian entities in the pipeline, confirming the internationalised status of the Exchange SEM s multi-currency platform growingly used as a listing/capital-raising platform by international issuers SEM voted most innovative Exchange in Africa in 2011, 2012 by Africa Investor

6 Adding a new dimension to the reform agenda Slashing of transaction fees for turnaround trades on both Official Market and DEM by 88% from 1.25% to 0.15% A turnaround trade involves: the selling of a security that has been purchased earlier during the same settlement cycle (i.e within 2 days of the initial purchase) to take advantage of an upward movement in the price of the underlying security, or the purchase of a security that has been sold earlier during the same settlement cycle (i.e within 2 days of the initial sale) to take advantage of a downward movement in the price of the underlying security, assuming that the investor holds the security in his/her securities account prior to the initial sale. Slashing of transaction fees on corporate bonds trading by 83% from.60% to 0.10%

7 Current fee structure for trades on both Official Market and DEM Value of Transaction Investment dealer Securities Exchange Commission Rs % % % % % The CDS Total fee claimed for apportionment Not exceeding 3 million More than 3 million but not exceeding 6 million More then 6 million but not exceeding 10 million More than 10 million

8 A compelling fee structure for turnaround trades For transaction value on turnaround trades exceeding 50,000 rupees Investment Dealer SEM Commission CDS Total brokerage fee claimed for apportionment % of transaction % of transaction % of transaction % of transaction % of transaction value value value value value 0.10% 0.025% 0.005% 0.02% 0.15% For transaction value on turnaround trades not exceeding 50,000 rupees Investment Dealer SEM Commission CDS Total Minimum Fee Rs 50 Rs Rs 2.50 Rs 10 Rs 75

9 Current fee structure for corporate bonds Value of Transaction Investment Dealer Securities Exchange FSC CDS Maximum Brokerage Fee Rs % % % % % Not exceeding 100, More than 100,000 but not exceeding 2 million More than 2 million

10 A compelling fee structure for corporate bonds For transaction value on debentures exceeding 75,000 rupees Investment Dealer SEM Commission CDS Total brokerage fee claimed for apportionment % of transaction % of transaction % of transaction % of transaction % of transaction value value value value value % % % % 0.10% For transaction value on debentures not exceeding 75,000 rupees Investment Dealer SEM Commission CDS Total Minimum Fee Rs 55 Rs 9 Rs 2 Rs 9 Rs 75

11 Illustrating the compelling advantages of the new fee structure for Turnaround Trades Example 1 Investor A buys 1,000 shares of company XYZ at Rs 100 on T Investor A then sells 700 shares of company XYZ at Rs 103 on T+1 to take advantage of price increase Total fees paid by Investor A in the absence of the new fee structure: = (1000*Rs 100*1.25%) + (700*Rs 103*1.25%) = Rs Total fees paid by Investor A following the introduction of the new fee structure: = (300*Rs 100*1.25%) + (700*Rs 100*0.15%) + (700*Rs 103*0.15%) = Rs Total discount obtained following introduction of new fee structure on turnaround trades = Rs 1563 = 72.7% Profit of 3% for a total fee of only 0.3% for the purchase and sale of the 700 shares

12 Illustrating the compelling advantages of the new fee structure for Turnaround Trades Example 2 Investor B holds 2,000 shares of Company XYZ On T, investor B,expecting share price of company XYZ to drop, decides to sell 1,500 shares at Rs 100 On T+1, the price of company XYZ drops to Rs 97 Investor B purchases 1,000 shares at Rs 97 per share Total fees paid by Investor B in the absence of the new fee structure: = (1500*Rs 100*1.25%) + (1000*Rs 97*1.25%) = Rs Total fees paid by Investor B following the introduction of the new fee structure: = (500*Rs 100*1.25%) + (1000*Rs 100*0.15%) + (1000*Rs 97*0.15%) = Rs Total discount obtained following introduction of new fee structure on turnaround trades = Rs = 70.2% Profit of 3% for a total fee of only 0.3% for the sale and purchase of the 1,000 shares

13 Statistics on Intraday price movements Average % Daily Change (+ve) MCB: 2012: 0.67% (from 0.59% to 1.23%) 2013: 0.56% (from 0.13% to 2.02%) LUX: 2012: 1.4% (from 0.45% to 6.98%) 2013: 2.03% (from 0.18% to 9.3%) Average % Daily Change (-ve) MCB: 2012: % (from % to %) 2013: % (from % to %) LUX: 2012: -1.35% (from -0.39% to -7.76%) 2013: -1.7% (from -0.23% to -5%) The above figures are pertinent and reveal that is so much potential for investors to take advantage of upward or downward intraday price movements by executing a pair of turnaround trades with a total brokerage fee of 0.3% only.

14 Statistics on Intraday price movements Average % Daily Change (+ve) SBM: 2012, 0.95% (from 0.56% to 5.59%) 2013, 1.13% (from 0.53% to 2.15%) NMH: 2012, 1.39% (from 0.61% to 7.69%) 2013, 1.72% (from 0.28% to 6.9%) Average % Daily Change (-ve) SBM: 2012, - 0.8% (from % to %) 2013, % (from % to 3.81%) NMH: 2012, -1.67% (from -0.63% to -9.09%) 2013, -1.26% (from -0.28% to -5.97%) The above figures are pertinent and reveal that is so much potential for investors to take advantage of upward or downward intraday price movements by executing a pair of turnaround trades with a total brokerage fee of 0.3% only.

15 Illustrating the compelling advantages of the new fee structure for corporate bonds Investor C purchases 1000 corporate bonds of company XYZ at a price of Rs 1,000 per bond on T On T+30, the price of the bond increases to Rs 1,100 and investor C decides to sell the 1000 bonds he holds Under the current fee structure, investor C pays total fees for both transactions amounting to = (1000 x 1000 x.6%) + (1100 x 1000 x.6 %) = = Rs 12,600 With the introduction of the new fee structure for corporate bonds, investor C pays total fees for both transactions amounting to = (1000 x 1000 x.1%) + (1100 x 1000 x.1 %) = = Rs 2,100 Total discount obtained = Rs 10,500 = 83.3% Profit of 10% for a total fee of.2% for the purchase & sale of 1,000 corporate bonds

16 Expectations from the new fee structures The significant reduction of 88% of the total brokerage fee from 1.25% to 0.15% on turnaround trades is expected to increase the volume of transactions on the SEM over time Conducive to the development of active intra-day trading on the SEM and the emergence of a group of day-traders, as in other larger emerging and developed markets Enhance active trading on the Exchange and boost liquidity Reinforce the position of the SEM as an attractive listing, trading and capital-raising platform for local, regional and global issuers Contribute to the positioning of Mauritius as an attractive international financial services centre of substance

17 Expectations from the new fee structures The significant reduction of 83% of the total brokerage fee from 0.60% to 0.10% on corporate bond trading sets the stage for active trading on corporate bonds It also enhances the attractiveness of investments in corporate bonds, facilitates exit from these instruments It also potentially enhances the scope of further listings of corporate bonds on the SEM, setting the stage for the development of an attractive secondary market for corporate bonds

18 Setting the stage for a new stock Exchange environment Expected enhanced liquidity can open up the space for the implementation of a new range of value-add services by SEM & CDS: The introduction of market-making on liquid stocks The introduction of covered short-selling on liquid stocks The introduction of single-stock futures on liquid stocks The design & introduction of index-futures on liquid stocks Enhanced liquidity can also raise the attractiveness of the SEM as a leading capital-raising, listing & trading African platform and fundamentally transform the local stock Exchange industry

19 Implementation plan of new fee structures Introduction of new fee structure for turnaround trades once gazetted (target is end of November/early December) Introduction of new fee structure for corporate bonds once former regulations are revoked and new FSC Rules gazetted

20 Sine-qua-non condition for a successful enhancement of liquidity following the introduction of the new fee structures The new fee structures need to be aggressively marketed to investors Brokers have now a fundamental role to sensitise the market and investors about the advantages of the new fee structures It is expected that companies with a higher free-float will benefit more from the new fee structures than those which are tightly held

21 Word of Thanks The successful implementation of this ground breaking initiative is due to the support and input from the Financial Services Commission, the Port Louis Stockbroking Association, the CDS and the staff of the SEM

22 Thank you