Legal Aspects of Promoting the Participation of Collective Investment Schemes in Eastern and Southern African Frontier Securities Markets

Abstract

African Frontier Securities Markets (FSMs) suffer from low capitalization and inadequate liquidity. They are also perceived as risky and volatile and, as such, are not often included in international institutional portfolios. The central argument of this article is that, the capitalization and liquidity of African FSMs could possibly be enhanced by promoting formation, and participation of various styles of successful and vibrant Collective Investment Schemes (CISs)—more especially the open-ended CISs—which could provide a platform for participation of small investors in the domestic securities markets. Open-ended CISs could also increase the supply of securities to securities markets through further issues to the existing investors as well as the general public. Using the qualitative approach, the study assesses the regulatory and institutional framework for Collective Investment Schemes (CISs) so as to establish whether or not the said framework provides adequate incentives for the formation, and participation of various styles of CISs on domestic securities exchanges. The study employs the doctrinal, non-doctrinal and comparative approaches to examining the effectiveness of legal and regulatory rules. The main findings of the study were that: (a) the legal and regulatory framework permits the formation, and participation of various styles of CISs on domestic securities exchanges (b) both domestic and foreign CISs are permitted to participate on domestic securities exchanges (c) the domestic securities regulator has power to conduct continuous investor education (d) the participation of CISs on securities exchanges stimulates growth in liquidity, and accelerates the development of the exchange.