Issuer and Investor Proprietary Rights in Eastern and Southern African Frontier Securities Markets—The Role of the Compensation Fund, and the Case for a Regional Compensation Fund

Abstract

Although empirical evidence shows that investment flows to Sub-Saharan Africa, in form of foreign portfolio investment (FPI), have been on the rise in the past two decades, further evidence shows that actually, investment flows into the Common Market for Eastern and Southern Africa (the COMESA Region) have been very low. Against this backdrop, the need for an efficient Domestic Compensation Fund (DCF) has been highlighted. It is also against the said background that the establishment of a Regional Compensation Fund (RCF)—as a complement of the DCF—has been mooted as a possible way of enhancing the attractiveness regional securities markets as they compete with other markets outside the COMESA Region for those FPI flows to Sub-Saharan Africa. This article examines mainly the Zambian regulatory and institutional framework which regulates the public distribution of securities domestically and across international borders so as establish whether or not it provides adequate incentives and safeguards for prompt and adequate compensation of investors and other market participants who suffer pecuniary loss on account of the default of a licenced person or their employee. The study employs the doctrinal and the non-doctrinal approaches to examining the effectiveness of regulatory rules and institutions. The main finding of the study was that the regulatory and institutional framework for the public distribution of securities does not provide adequate incentives and safeguards for prompt and adequate compensation of investors and other market participants as aforesaid. In particular, the results of the study show that (a) although the regulatory and institutional framework provides for the compensation of the investors and other market participants for their losses, it does not (i) provide for recourse to other bodies for the recovery of unmet or unsatisfied claims or portion of the claim, (ii) fix the time-frame for the determination of compensation claims, (iii) provide for a statutory right of appeal against the determinations or decisions of the DCF, and (iv) a RCF has not been mooted yet or established as a complement to the DCFs in the COMESA Region. The central argument of this article is that liquid and efficient DCFs which are supported by a vibrant RCF are likely to promote market participation and enhance the resilience and fortitude of domestic securities markets in the COMESA Region as they strive to recover from the financial shocks of COVID-19.