Strike right balance in capital market regulation - Experts

Financial experts have called on regulators to strike the right balance in the regulation of African stock markets so as not to destroy the potential growth of the continent's capital market.

They held that emerging markets on the continent could flourish if the burden of regulation was kept at a level that would encourage active stakeholders' participation.

While admitting that a well-regulated market was necessary to maintain investor confidence, they maintained that over regulation could rather stifle the potential growth.

Presenting a paper on Regulations and Market Development at the just-ended 11th African Securities Exchanges Association (ASEA) Conference in Accra, Mr Andy Wilson, Chief Executive Officer of the International Securities Consultancy, said too much emphasis had been placed in recent years on building costly regulatory regimes at the expense of good market surveillance.

Surveillance is the process of monitoring market activity to identify unusual trading patterns or market conditions that may indicate market abuse or breaches of exchanges rules.

According to him, effective market surveillance should be the frontline in the fight against market abuse.

"Surveillance may expand market potential, minimize market manipulation and insider trading, encourage faith in the market and encourage faith in the regulator," Mr Wilson said, adding however that, surveillance by itself was not enough to improve market liquidity nor will it develop the market.

A sure way to improve market development was to improve standards and qualification of market participants and those who offer investment advice.

"A market that requires the people working in it to be qualified is much more highly regarded than a market that operates with minimal qualification requirements," Wilson said.

Mr Siobhan Cleary, Senior Manager, Strategy, Johannesburg Stock Exchange, who spoke on the role of technology in market development, said investment in technology was critical to facilitate development of the Exchanges.

But this should be done bearing in mind customers' demand, global trends and opportunities and future needs.

A cross-section of participants interviewed said market development needed to be total and backed by the political will to grow the market.

The two-day ASEA conference discussed integration, market development and regulation, among others.

It was hosted by the Ghana Stock Exchange (GSE) on the theme: "The African Capital Market: The Next Investment Frontier".

Uganda will host the next conference in November 2008.