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The Demutualization of the Botswana Stock Exchange Unpacked

Publishing Date : 24 September, 2018

Author : TITO TIBONE

As the demutualization of the Botswana Stock Exchange (BSE) ensues, prospective investors are advised to be well informed about the intricacies of the capital markets. The Botswana Stock Exchange Act under the old dispensation did not make accommodations for individual shareholders. Therefore, it is necessary for the BSE to demutualize to separate membership from ownership.

 Currently there are four-member brokers who have agreed to demutualize from the Stock Exchange as per the Transition Act. Shareholding has been allocated according to proprietary trading rights and share premium, as per the agreement. Stockbrokers Botswana received (5.75%), followed by Imara (5.75%), Motswedi (4.32%), and African Alliance (2.88%). Consequently, there are some perks to being the first members of the Botswana Stock Exchange – starting with the reception of funding from government coffers leading up to the signing of the agreement, we have done away with conjecture and moved to an environment that is more intuitive.

A Rand Merchant Bank (RMB) report nixed any possibility of the brokers’ ability to serve as anchors in a demutualized Stock Exchange. Anchor status would favor the hands of member brokers in directing the growth prospects of the Stock Exchange. However, that status remains the purview of government – a benevolent shareholder that while endowed with the wherewithal to further the development of the Stock Exchange, may be bogged down in too much bureaucracy to propel significant growth prospects for the Stock Exchange.

The appeal for a look through the demutualization exercise aimed to determine whether it would not be in the best interests of both groups to have a more equitable shareholding structure. While the brokers would have hoped to have a more equitable shareholding structure and a pipeline of growth prospects to look forward to, the BSE is holding its cards close to its chest.

The RMB report, which forms the basis of the Botswana Stock Exchange’s valuation, outlines the framework for a demutualized exchange but falls short of offering visibility on the prospects of a demutualized Stock Exchange. A more transparent outlook of a demutualized exchange warrants some attention, as the spin-offs are innumerable. Naturally the public can then have a premise on whether to have an inclination towards investing in a demutualized exchange or not. Under the status quo, the Stock Broking community is compelled to curtail their expectations for a more equitable shareholding, as plans are already in place to float the BSE’s shares.

Traditionally precedent has dictated that member brokers nominate Directors onto the BSE Main committee. However, the new dispensation has made way for a new system to be employed selecting board members. That system, which employs a voting methodology, was put in place during the maiden board of directors meeting towards the end of August. New board members were proposed after having been nominated by shareholders.


The proposed directors were subjected to a vote and a new Constitution was adopted. Certain board members were cut and pasted from member brokers while others were not. Juggling executive functions, board duties and lobbying for BSE initiatives to be adopted will be the order of the day. The CEO of the newly incorporated company, Thapelo Tsheole, who owes his comeuppance to such juggling acts, will have to dig in his heels to strike a balance. Whether its punting exotic equities or rough and tough fixed income securities, there remains an incessant appeal for a certain kind of aesthetic within the BSE – permanent and pensionable!

Given that the BSE is at the epicenter of capital markets, the BSE will be looking to present a new face to the investment community. While having received the short end of the stick, the broking community will be looking to firm up support with investors to prepare for the initial public offering of Botswana Stock Exchange Limited. The CEO and the new board of directors will be charged with spearheading the floating of BSE shares on the stock exchange.

Such a task will come with its fare share of challenges given the limited public float that will be made available. However, fresh capital will give the Stock Exchange the shot in the arm it needs to pursue its long-term goals. Similarly, the cash hoard that the BSE is sitting on might be used to inject some ingenuity into the capital markets. For example, the BSE has not inducted a new broker dealer into the membership of the Stock Exchange in over 10 years.

Surely the stock exchange will be looking to groom new member brokers amongst the fresh crop of graduates. Most candidates might be overwhelmed with anxiety at the thought of embarking on a career within the capital markets space. While daunting, it is manageable for those who are conscientious about their craft. Firstly, one would need to become a dealer. Thereafter, candidates can pursue the rigorous RPE exams. RPE’s consist of two exams administered by the BSE.

However, for eligibility to be a dealer, an individual must have a degree as well as two years in a relevant field, of which one year must have been served with a stockbroking firm or a securities exchange. The one year allows for one to be well acquainted with the Stock Exchange’s Automated Trading System (ATS), a trading platform that has the capability to interface with users at the front end and facilitate administration at the back end.

I can vividly remember the workshops that ushered in the BSE’s ATS. Invitations were extended to all participants to convene at Kgale Mews to learn about the intricacies of ATS. As fate would have it, it’s a one-shot deal. When indoctrinated into the workshop; in not getting the first pitch, there’s bound to be collateral damage. In not getting the second pitch, a flaw is inevitable. The brokers that attended the workshop took to the platform like fish to water.

Ultimately, the BSE pulled off a miraculous launch that saw volumes increase exponentially. Naturally as technological innovations become more advanced, brokers, through workshops offered by the BSE, will have new opportunities to spruce up their core competencies in Trading, Research, or Client Servicing Initiatives.

Several stock exchanges have been through the process that is demutualization. The most notable on the continent being the Johannesburg Stock Exchange. The stakes are high in any case, as one may expect, a demutualized exchange looks to offer technological innovations necessary to compete on a global scale with other exchanges. It would not be far-fetched to see the BSE partnering with other Stock Exchanges which have demutualized. The demutualization of the New York Stock Exchange is exemplary of the value that can be unlocked via demutualization of a stock exchange.

However, studies show that not much value has been unlocked when members remain shareholders in the Stock Exchange. Demutualization further enables management to operate the affairs of the stock exchange unhinged providing scope for growth. One need only observe the dynamic environment wherein other demutualized Stock Exchanges operate to get an idea as to how demutualization will pan out. Either government or the brokers will need to cede ownership of their shares towards the introduction of an IPO. A deadlock between the two groups of shareholders might see either side being diluted to provide impetus for the public to invest.

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