The Launch of ESX: An Insight into Membership and Listing Rules

An Insight into Membership and Listing Rules

The ESX launch marks a key step for Ethiopia’s Capital Market. Understanding the legal frameworks for membership and listings is crucial. Trading members and listed companies must comply with regulations set by the Ethiopian Capital Market Authority. With the market reopening, two main questions arise:

• How to become a trading member?
• How to be listed on the exchange?

On January 10th, 2025, the Ethiopian Securities Exchange (ESX) was officially launched, licensed by the Ethiopian Capital Market Authority under Articles 30 and 31 of the Capital Market Proclamation and Directive No. 1009/2024.

Brief History

The Ethiopian Securities Exchange (ESX) and Ethiopian Capital Market Authority were first launched as the Capital Market Project Implementation Team under the National Bank of Ethiopia in August, 2021 with Brook Taye (PhD) as the Project Leader. In March of 2023, #ESX finalized a successful capital raise process, leading to its oversubscription by 240%. In October 2023, ESX transitioned from a project office to a Share Company under EIH as a PPP. Now, #ECMA and #ESX are both operational, and Wegagen Bank has become the first company to be listed on the Exchange. Further, the Central Securities Depository (#CSD) of the National Bank of Ethiopia is also operational, serving to facilitate the safekeeping, clearing, and settlement of securities.

Products, Services and Technological Framework

#ESX offers various products and services across three key areas: #Equity Market (Main Market and Growth Market), #Fixed Income Market (Interbank Money Market) and an #Alternative Market (Crowd Investment Platforms and OTCs).

The Exchange has also shown its dedication to ensuring technological innovation, featuring a state-of-the-art Automated Trading System, a Shared Broker Back Office and Order Management System, and an efficient e-IPO/e-Auction Platform. These advanced tools align with Ethiopia's ambitious digital transformation agenda, #DigitalEthiopia2025, ensuring a modern, efficient, and globally competitive market environment.

Mandates and Requirements

As a Self-Regulatory Organization (SRO), one of #ESX's mandate is to establish its own regulations. One of such regulatory frameworks is the ESX Trading #Rulebook. The rulebook has 5 volumes, which include the general rules, membership rules, listing rules, trading rules and dispute resolution procedures. Of these, the two most attention-grabbing volumes are the Membership Rules volume (Volume B) and the Listing Rules volume (Volume C).

1. Membership Rules - this volume, in part, regulates the relationship between the Exchange and trading members. It lists out who can be admitted as a trading member and provides the conditions for admissions request approval. One interesting fact about ESX is that not anyone can be a trading member. A prospective member must be a Private Limited Company or a Share Company. Furthermore, it must be licensed or in the process of being licensed by ECMA. An applicant would first need to have an approval in principle (AIP), which will be valid for six months until the applicant fulfils all operational requirements. After which, depending on whether or not an applicant meets the relevant document, account, compliance requirements, the #AIP will be converted into a full membership certificate, subject to a certification inspection by the Exchange. A member shall meet the minimum operating requirements and standards for Personnel, Organizational structure, Governance, Technology, Infrastructure, Policies and processes, and Competitiveness. The Exchange has exclusive authority to admit members and eligibility for membership is restricted to Capital Market Service Providers or Dealing Member Banks licensed or in the process of obtaining a license from ECMA. The application process involves submitting documents such as commercial registration certificates, tax identification, corporate structure, and financial statements. A prospective member must additionally demonstrate professional and technical capacity, fulfill qualification criteria, and meet fit-and-proper requirements for their personnel. Once a prospective member meets the initial criteria, the exchange will have the ability to grant the AIP. To commence operations, a prospective member is expected to meet additional obligations, such as providing proof of registration with a #CSD and complying with risk management and KYC protocols. The Exchange can impose conditions or revoke membership for non-compliance, ensuring adherence to regulatory and operational standards.
2. Listing Rules- this provides for listing requirements across all key areas such as financial and corporate governance reporting requirements, public floating requirements and so on.  The Ethiopian Securities Exchange listing requirements emphasize transparency, compliance, and adherence to procedural and disclosure standards. Issuers must provide accurate and clear information to the Exchange, ensuring no material omissions or misleading statements. All disclosures, including documents and explanations, must be submitted in both electronic and hard-copy formats unless otherwise specified. The Exchange reserves the right to verify submitted reports through independent advisers and may disseminate received information in line with confidentiality and data protection laws, prioritizing public interest. Issuers must promptly notify the Exchange of any inaccuracies discovered in previously submitted information.

Fees associated with the listing are determined by the Exchange and detailed in the Fee Schedule annexed to the Rulebook. While these fees are mandatory, the Exchange retains discretion to waive them on a case-by-case basis. The Exchange exercises significant authority in approving or rejecting applications based on criteria such as shareholder approval and public float requirements. Approvals may be conditional, and the Exchange has the prerogative to reject applications even if all technical requirements are met, provided it acts in the public interest and discloses its reasons.

The listing process requires Issuers to submit complete applications, including relevant documentation and proof of fee payment. The Exchange conducts due diligence to ensure compliance with listing criteria and may request additional information or updates to documents like prospectuses. Approval is contingent on fulfilling all the conditions set out in the Exchange's approval letter, with final admission granted at the Exchange's discretion. For public offers, Issuers must announce offer results and subscription rates before listing is confirmed. These procedures ensure the Exchange maintains a transparent, well-regulated market for listed securities.

Future Prospects of the Ethiopian Securities Exchange

The launch of a stock exchange is not just a financial milestone but also represents a transformative step in a nation's economic and legal evolution. The introduction of the Ethiopian Securities Exchange marks a significant advancement in Ethiopia's financial sector, showcasing the country's dedication to fostering a robust and transparent capital market.

With its comprehensive regulatory frameworks, state-of-the-art technology, and focus on inclusivity and compliance, ESX is laying the groundwork for sustainable economic growth and investor confidence. By offering clear pathways for membership and listing, the Exchange ensures that only well-prepared entities engage in market activities, thereby safeguarding integrity and promoting accountability.

As Ethiopia embarks on this transformative journey, the ESX stands as a pivotal institution in shaping a vibrant and resilient financial ecosystem.