Mozambique Stock Exchange

MOZAMBIQUE STOCK EXCHANGE
1. ABSTRACT

After more than seven years of effective activity in the Mozambique Stock Exchange, the effort to attain stability and operational regularity in the performance of all of the tasks that the stock exchange had to attend to before the market place, striving not only for the satisfaction of the of the service levels that we understand due, but also to gain institutional and operational, credibility and confidence, of all of those participating in this market.

Having attained the normal level of activity after its start-up, the Mozambique Stock Exchange has lead its course of action towards providing more efficient services to those parties and affiliates: The authorities and other State entities, the business sector, public sector, institutional and individual investors, and, naturally, the financial institutions. This report contains information that serves as a testimony of the results of the input towards innovation, perfection and response to the constantly emerging needs of the market such as have been, and will continue to be.

Even though we are dealing with a relatively new reality, the stock exchange has had an influence in managing and dealing with securities in the secondary market. This new establishment has made important contributions that stimulate development and

consolidation of technical and operational set of actions, in
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Mozambique Stock Exchange

accordance with the Government sector, private sector, and financial institutions. All of these constitute the fundamentals for the economic and social development of our country.

The last point refers to the basics of the stock exchange. In fact, it has deserved and will continue to deserve, our close attention: Promoting the growth in the practices of business management to result in a transparent, rational, efficient, and competitive manner, getting closer to the businesses in the market, and contributing to an education focused on a market economy. This will continue to be done, without leaving the professionalism and specialization demanded by the financial institutions, to diversify the nature of their negotiable financial products.

The current development stage of the stock exchange would not be possible to achieve without the confidence that have been placed upon the Capital Market and the Mozambique Stock Exchange given by the unconditional support of the Government, the Bank of Mozambique and the National Treasury Department, the financial institutions and dealers/brokers, and finally the listed security issuers.

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2.

HISTORY

In 1997, the Government of Mozambique, through the Ministry of Planning and Finance, established the “Stock Exchange Installation Commission”, whose mission has been to promote better and more efficient control of the capital market in Mozambique. That is, from the creation of an institutional structure and is legal framework, as well as, to create the stock exchange. As from the beginning, this was the most reliably appointed figure to perform the task for an efficient functioning of a secondary market involved in securities trading.

Throughout the course of this important period, the organization of the Installation Commission’s activities initiated effectively by having a month long internship at the Lisbon Stock Exchange which began on the 18th of February in 1997, until march. This could only happen with the most suitable human resources and the adequate financial investment provided by the Mozambican Government, along with the World Bank.

As a matter of fact, it’s important to point out the positive way in which the internship occurred, and as a result, creating a closer relationship between the Installation Commission and the Lisbon Stock Exchange. This relationship was officially formalized in March of 1996 with a celebration of a cooperation protocol between the Mozambique Ministry of Planning and Finance and the Lisbon Stock Exchange. The protocol considered as the main vectors to
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undertake, the establishment of a legal framework for the market, the professional team involved in the project, the aid in Mozambique privatization programs in aiming as listings arising from this process. Finally they agreed upon aid on installing technical structures and operating systems essential for the proper functioning and smooth running of a stock exchange in Mozambique.

Throughout the years 1997, 1998 and 1999 the Installation Commission created all the necessary prerequisites for organizing the capital market in Mozambique.

These were focused on: • •

Elaboration of the legal framework needed for on operating market;

Establishment of the supervision structure directly linked to the Bank of Mozambique.

Within the financial institutions, a restructuring process related to the securities business activities;

Creation of the necessary conditions for all allocating the Treasury with an immediate bond issue, “Obrigações do Tesouro 1999”, aimed to be the first security listed in the Mozambique Stock Exchange.

Establishment of an operational model on how the markets works;

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Development of the necessary operational systems, such as electronic trading systems; clearing and settlement systems;

Lastly, training the market operators from the public administration level, to the financial intermediaries and the business sector at large.

The activities undertaken by the Installation Commission lead up to the inauguration of the Mozambique Stock Exchange on October 14, 1999 market by the first normal stock exchange trading session to take place. During this historical moment the session was opened by, the Minister of Planning and Finance, His Excellence, Dr. Tomaz Augusto Salomão. In this session 920 treasury bonds were traded at a price of 1,005,000 MZM each having established the market buying price.

A remarkable aspect of this breaking point in history was also the creation of the Decree number 49198, on September 22. This decree approves the internal rules and regulations of the Mozambique Stock Exchange, and it recognized the nature of this entity as a public institute endowed with administrative, financial as patrimonial autonomy.

Main Events

From the star-up date of the stock exchange activities, the abovementioned operational model was set to operate twice a week, every Tuesday. Electronic operational functions were carried out for trading, clearing, and settlement. The stock market operators were
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trading via a local network system. Initially, the trading began as call system which enabled the base quotation for each security to be determined in each session. The first trade was initiated with one security listed – “Treasury Bonds 1999” and all of them were physical scripts.

Ever since then, until the end of the year 2002, which is the period covered in this report, considering the activities mentioned in the MSE action plan – running the securities market -, as well as the contribution for the development of the nation, expansion, consolidation, and product diversification in the Mozambican capital markets, we could highlight the following initiatives and accomplishments: • In February 2000 we observed the first public bonds subscription made by a private company (a corporate bond of Madal company). •

Installation of a remote trading network system with a direct access to the stock market, therefore making it possible for consultation among the stock market operators without need for a physical moving from one location to another. This was done by making information available via wireless internet, for faster, safer and trustworthy conditions;

• In the last quarter of 2000, a number of steps were put in aimed at informing a variety of related groups i.e. Professionals from both financial and business sectors as well as universities ant the general public
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• Creation of legal framework for dematerialized securities through the Decree number 34/2000, of 27th of October, included in the MSE operation circulars. • Establishment of the clearing and settlement control system for the securities positions that were registered at each financial

intermediary, according to the legal rules regulations that previously had been agreed upon. • The launch of the initial public offer, whose results were summarized at the first special trading session taken place at the MSE on December 2001 (State sales offer of its minority shares holding in the private company, Cervejas de Moçambique – CDM). • The first listing of shares, with the sequential establishment of the public offer mentioned above (listing of two categories of shares by CDM, one for the general public and the other can only be traded amongst managers and workers); • The increasing of the trading days from having it twice a week Tuesday and Thursday to five days a week, as of the month of November 2002. • Establishment of a new trading system – Registered Trading System – oriented to institutional investors and to complement the existing one, the call trade system, whose continuity was not only secured but

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improved through new rules established in the Mozambique Stock Exchange Circular stating the trading disciplinary actions; • Progressive Increase in the number of the stock exchange operators to six; • Finally increase on the number of listed securities to 14, and the market capitalization over US$400 Millions.

Institutional outlook

The Mozambican Securities market is organized around the intervention by the following entities:

Firstly, the Mozambican Government, who has the power to define the general guidelines, which rules the securities. The specific Government sector responsible for this task is the Minister of Planning and Finance, whom has the guardianship over the Mozambique Stock Exchange.

The Bank of Mozambique, in its own right, is the entity responsible for the supervision and surveillance in both the primary and secondary securities market, and also to all market operators. It is also responsible for regulation of everything except to those matters expressly reserved to the Minister of the Planning and Finances, if it finds foreseen in the securities legislation.

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The Mozambique Stock Exchange is the market management entity, endowed with the means necessary to ensure continuity in an open and free market (through authorized intermediaries, the buying and selling of securities) and also has the competence to regulate matters related to the operations.

The financial intermediaries are collective entities, either of public or private nature, legally qualified to professionally perform financial mediation activities at the stock market.

The stock exchange operators are financial intermediaries, authorized to execute transactions within the Mozambique Stock Exchange, on their own, as well as on behalf of the third parties.

The financial intermediation activities can only be exercise by collective entities whom are recognized as qualified for, in the terms specified in the Ministerial Diploma 10/99 of February 24th and Decree 15/99 of November 1st. To exercise the activities undertaken as a stock market operator (Brokers or Dealers), these entities need to be registered in the Mozambique Stock Exchange.

In the Mozambique context, and in light of the 14th of June 1999 Ruling of the Minister of Planning and Finance, the banks with headquarters in domestic territory are authorized to exercise activities of stock market operators, having undertaken the figure of a Dealer.

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Mozambique Stock Exchange

The financial mediation activities taking place in the Mozambique Stock Exchange are constituted of six entities; all are dealers their identities go as follows: • BIM Banco Internacional de Moçambique • Standard Bank de Moçambique • BCI Fomento - Banco Comercial e de Investimento • BPI Dealer ( Moçambique) Sociedade Financeira de Corretagem • Barclays Bank • CPC – Cooperativa de Poupança e Crédito

The Investor Protection and Aid

The legislation and regulations that were established were set with strict and vigorous rules aiming at protecting the investor to the utmost: In this case, by disclosing all legal information to be given to issuers, and also the conditions to accomplish the market operations and, especially, the conditions of exerting the financial intermediation activities.

On the other hand, the Mozambique Stock Exchange has actively evolved supplying information and helping investors, especially individual investors, aiming and providing any clarification on how to intervene in the market.

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Integrity, Transparence and Equality in the Market

The way in which the market is organized and structured, namely the financial intermediaries’ duties such as executing operations and provision of services, the principle of professional secrecy, of information given by issuing the market and the nature of the functions attributed to the Bank of Mozambique, establish the right conditions for an effective and efficient market in terms of integrity, regularity, normality and transparence.

Registered and Follow-Up

In the development of its attributions, the Mozambique Stock Exchange has been always registering everything relating to its activities. This includes the following material: • Registering of the issuers, mainly listing, suspensions, delisting, and re-listing of securities issued, and all of the relevant facts that characterize the issuers´ jurisdiction: • Individual registering of the identity of the stock exchange sponsors; • Registering the stock exchange operators who are authorized to carry out operations as well as individual registering of all their mandates; • Registering of all the effective operations;
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• Registering of all the tripled buy or sell notes, relating to effective operations, issued by the operators; • Registering of the reports of all the issues that were publicized; • Registering of all the special trading sessions taken place; • Registering of any disciplinary sanctions applied.

Information Dissemination and its Quality

The information dissemination related to trading in the stock exchange, the operations that take place in the market outside the stock exchange, as well as all the information referring to the market and any circumstances related to issuers, are published at the Stock Exchange Bulletin, with the reference to every stock market trading sessions carried out.

This publication discloses all the information about the stock market issued securities characteristics, namely: • In the case of share, the issuer name, the nominal value and quantity of the listed securities, amount of dividends and other retribution attributed to each share, and the date of the last divided distribution occurred;
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• In the case of bonds and other debt-related securities, the nominal value and quantity listed, the nominal interest rate, the daily interest, the listing year and dates of interest payments, and its maturity date.

With respect to stock exchange’s effective operations, and relatively to each security traded during the lock session, the object to offers to buying or selling, without the confirmation of any trade occurring, the Bolentim de Cotações (Listings Bulletin) refer to: • Effective quotations or price • The best proposals for buying and selling of available securities • The quantities that were involved in each transaction.

The Stock Exchange Bulletin supplies information on the monthly and annual trading sessions gathered in each one of its systems and presents the market capitalization for each session taken place, and of the previous one, as well as its respective percentage change.

This publication also contains information on the financial intermediaries, members of the Mozambique Stock Exchange’s trading, clearing and settlement system, including their names and details of their mandates.

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3.

LEGAL FRAMEWORK

In its own as the markets managing entity, the stock exchange also carried out task in building up regulation and actions to regulate the market. That is whether elaborating the proposed legislative and regulatory initiatives, or participating along with other authorities, in regulating different subject matters not only directly linked to the Mozambique Stock Exchange, but also reflect upon the performance of securities within the market.

In the range of attributions for each market participant with the aim of endowing the market with better organization, operation, transparency, and there published the following legal documents: Decrees number 48/98 and 49/98, both from of September 22nd, emanated by the Ministers Cabinet. The first one establishes the general rules about the securities market in Mozambique. The second one recognizes the creation of the Mozambique Stock Exchange and approves its Internal Rules. The Ministerial Diploma number 10/99, of February 24th, of the Ministry of Planning and Finance, monitors the activity of the financial intermediaries dealing with securities including their access to financial intermediation at the Mozambique Stock Exchange;

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The approval by the Cabinet of the Decree 34/2000 of October 17th, states the steps to be taken and the formalities applied in issuing, registering, circulation, and control of dematerialized securities. The Decree 61/2003 of December 14th, exempts of taxes (IRPC – personal annual tax and IRPC – company annual tax) all the incomes of the listed securities in Mozambique Stock Exchange. Also the legal acts concerned with the listed securities are exempts of stamp duties. The Decree 21/2005 of May 31st, establishes a new type of security named “Commercial Paper”.

Notices number 2/GGBM/99, 3/GGBM/99, and 4/GGBM/99, of March 14th , from the Bank of Mozambique , determined what the taxes and commissions should be charged for both transactions carried out within the stock market – Notice no. 2, and outside of the stock market- Notice no. 3. It also regulates the conditions for the initial public offers (Notice no.4). The Decree 25/2006 of August 23rd, establishes a securities depository, where the company registration will be mandatory to any domestic company.

The Mozambique Stock Exchange not only intervenes in the market as the managing entity, but also as entity with legislative powers.

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Because of both of these attributions the stock exchange published the following legal diplomas: •

Circular no. 1/GPCDBVM/99 stating the stock market operator’s organizational and registering conditions and their mandates;

• Circular no. 2/GPCDBVM/99 regulates the conditions for listing securities at the stock exchange; • Circular nº 5/GPCDBVM/01 is directed towards regulating the clearing and the settlement of the market operations. • Circular nº 1/GPCDBVM/02, concerning to the sessions, trading and financial settlement;

stock exchange

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4.

LATEST ACHIEVEMENTS

a) Legislative Changes

The regulatory framework establishing a new securities code was submitted for approval by the Government.

b) Market Developments

The Exchange is engaged in a nationwide process of consultation with the domestic business community as to the mechanisms as to launch a secondary listing board aiming at capturing the medium size companies.

It is also a process of defining the strategy on how to introduce the concept of securities depository among the business, since the company registration will be mandatory to any domestic company.

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5.

FUTURE PLANS

With growing economic and market globalization, the dynamism, sophistication, and expansion of services rendered by the financial sector, the continuous need for businesses to grow, develop and diversify their activities, and the increasing demands from investors, whether in terms of the quality of the services, or in maximizing their profits benefits for their servings, all of these require a continuous developing market, with the ability to fully respond to all their needs.

Throughout the time that the Mozambique Stock Exchange concentrated the efforts to fully reaching the necessary stability and operational regularity, bringing security and, proportionally, a level of services that are efficient enough for the various agents within the market, there is all need for a strategic thinking to consolidate, expand and develop the Mozambican securities market, and the stock exchange itself.

The stock market dynamism and its continuing and sustained growth, will be possible through an already, clear and objective well defined plan for a strategic orientation. This plan has to be rigorous in reaching its goals, and also, in its pre-determined actions and towards progress.

Under its attributions and competences as the securities´ managing entity, from the 3rd quarter of 2002, the Mozambique Stock Exchange, did establish a master action plan with the view of a time
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limit no less than three years. The objective of such a plan is to endow the market with renewed dynamism of consistency and amplitude in the Mozambican stock market, and equally in the Mozambique Stock Exchange.

The context of the referred orientation plan, the nature of outlined measures cover material starting from the market’s institutional organization to the details of operational efficiency. This covers the structural limitations of the functional operations of the market, similarly, the actions that interact with all others market participants – the authorities, the financial intermediaries, businesses and the investors.

After the guidelines have been established, there was all need to look for ways to create the right environment to launch fundamental strategic goals for another way of functioning and expression of the securities market, such as: • Promoting joint actions that stimulate effective expansion and growth in the structure of the primary and secondary market; • Develop actions that allow for greater visibility of the market, contributing to an adequate acknowledgement of its role and credibility; • Create the conditions so that the Mozambique Stock Exchange can reinforce its position in the midst of the financial market;

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• Installing the necessary means of diverse nature to function and maintain at a high technical standards; • Incite broad general knowledge of the market, so that there is high level of professionalism from all participants. • Establish favourable structural and operational conditions for interaction with the global market. • Agree upon the joint measures to be taken for the internal organization of the institution the vision of internal efficiency and the level of services rendered.

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The Stock Exchange Dealers

BPI Dealer - Soc. Fin. de Corretagem Av. Julius Nyerere , nº 210 CP 1016 Maputo Telefone: +258 21 494009 / +258 21 491170 Fax: +258 21 493412 E-mail: bpidealer.mocambique@teledata.mz Contacto: Dra Isabel Mansour Andrade Augusto Mulenza Rui Jorge Cardoso

Standard Bank Praça 25 de Junho, nº 1 CP 2086 / 1119 Maputo Telefone: +258 21 352500 / +258 21 352566 Fax: +258 21 352563 Contacto: Dra. Cláudia Conceição Dr. Fernando de Oliveira

Barclays Bank Moçambique Av. 25 de Setembro, nº 1184 Maputo Telefone: +258 21 313453 / +258 21 303037 / +258 21 314647 Fax: +258 21 313454 E-mail: wernerp@barclays.co.mz joaquinal@barclays .co.mz Contacto: Werner Pauw Joaquina Litsure

Banco Comercial de Investimento Av. 25 de Setembro, prédio John Orr’s, 1645 CP 4765 Maputo Telefone: +258 21 353722 / +258 21 353723 / +258 21 309832 Fax: +258 21 311613 / +258 21 307152 E-mail: msoares@bcifomento.co.mz mondlane@bcifomento.co.mz Contacto: Manuel Soares Acácio Mondlane

Millennium bim Av. 25 de Setembro, 1800, 16º Piso CP 2657 Maputo Telefone: +258 21 351551 Fax: +258 21 354393/4 E-mail: apinheiro@millenniumbim.co.mz Contacto: António Silva Pinheiro

Cooperativa de Poupança e Crédito Av. 25 de Setembro nº 1695 – 3º andar Maputo Telefone: +258 21 307753 Fax: +258 21 307754 E-mail: cpc-sc@teledata.mz Contactos: José Vaz Pele Fernandes Rosa Mertina Telma Augusto Guambe Sandra Cristina Mendes Lopes Amina Jamal

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