Kenya and Rwanda have connected their stock markets electronically to boost investments between the two countries and as a gesture of commitment to the regional integration of the capital markets.

Four Kenyan companies have cross-listed on the Rwanda Securities Exchange (RSE) in anticipation of booming business between the countries. These are Nation Media Group, Equity Bank, Kenya Commercial Bank and Uchumi Supermarkets.

Robert Mathu, the executive director of the Capital Markets Authority of Rwanda, said automation of the EAC members’ stock markets forms a key pillar of the capital markets integration.

“The process of integration of East Africa’s capital markets is on course, and it is very encouraging. We are currently working on a project to automate and connect all the five stock exchanges electronically. The integration is at an advanced stage, but the only challenge is that of automation,” Mathu told The East-African.

“The decision to automate an exchange is determined by the volume of business, but the key requirement is to connect these markets electronically. Already, Nairobi and Kigali’s Central Depository systems have been connected electronically. This means you can buy shares in Nairobi and sell them in Rwanda,” Mr Mathu added.

READ: Different platforms dog EA’s cross-listing efforts

Market intermediaries, on the other hand, would be able to offer their services in each of the EAC member states.

“All countries in East Africa have already reviewed their laws to ensure implementation of the Common Market Protocol,” said Mr Mathu.

As part of the process towards unified capital markets, a set of 15 directives were adopted by the EAC Council of Ministers in November 2014 and are only waiting for a transposition by the EAC member states.

The directives were on takeovers and mergers, investor education and protection, anti-money laundering, securities depositories, conduct of business by licensees, securities exchanges and licensing of market intermediaries.

Others are EAC corporate governance on listed companies, public offer of debt securities, public offers on equities, corporate governance for securities market intermediaries, admission to secondary trading, Asset Backed Securities , regional listings on securities markets and collectives Investment schemes.

The EAC Common Markets Protocol which became effective on July 1, 2010, prioritizes regionalization of the East African Capital Markets with the aim of providing an opportunity for the growth and deepening of the capital markets in the region to promote economic growth.

It is argued that well integrated regional markets will allow issuers to tap regional capital market to raise capital required to meet the costs of major infrastructural development and commercial ventures.

According to the EAC regionalisation strategy for the capital markets the mechanism for integrating the legal and regulatory environment should be through harmonization of national requirements rather than the enactment of a single overarching regime.

In this case, harmonisation means the implementation of minimum standards of regulation across all the EAC partner states. Each country will recognise the regulatory regime of other countries through harmonisation of policies and approximation of laws.

The regionalisation process has taken into consideration that the EAC capital markets are at different levels of development and that an overarching EAC Community law would only be feasible in the long-term after a high degree of convergence between the different EAC capital markets has been attained.

These harmonised laws are developed in the form of EAC Council of Ministers Directives by Kenya ‘s Capital Markets Authority( CMA), Nairobi Securities Exchange ( NSE) and Central Depository Settlement Corporation (CDSC) together with their peer institutions in the EAC region.

The first set of seven EAC Council Directives developed in 2013 was issued by the EAC Council of Ministers on April 28 2014.
All the EAC partner states are now in the process of transposing these Directives into their respective national legal frameworks.

The second set of eight draft Council Directives, which was subjected to public consultation between June 13 and July 13 2014, is now under consideration for adoption through the EAC structures.

READ: Rwanda Stock Exchange closer to automated trading