Annex III. Stylized Facts: Secondary Equity Markets

International Monetary Fund
Published Date:
December 2008
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This annex summarizes the stylized facts on secondary equity markets in smaller economies. Generally, the empirical and descriptive literature on equity markets in smaller economies is extremely limited and thus there is little to draw on (Box A3.1). The first part of the annex summarizes cross-country data and key patterns, and the second part consists of nine case studies.

Cross-Country Data and Patterns

Most smaller economies do not have formal secondary markets.56 Only 43 of the 107 smaller economies have secondary stock market data reported by the World Bank, compared to 37 with the 43 emerging market countries (Table A3.1).

Standard market indicators indicate that those equity markets that do exist in smaller economies are considerably less developed than those in emerging market countries. The median market capitalization across smaller economies is less than half that of emerging market countries, and the median stock turnover ratio is some five times smaller for smaller economies (Table A3.1 and Figure A3.1).

Table A3.1.Smaller Economy Countries: Stock Market Indicators, 2005
Listed Domestic Companies, TotalMarket Capitalization of Listed Companies (In percent of GDP)Market Capitalization of Listed Companies (In billions of current U.S. dollars)Stocks Traded, Total Value (In percent of GDP)Stocks Traded, Total Value (In billions of current U.S. dollars)Stocks Traded, Turnover Ratio (In percent)
Smaller economies (43)
Emerging market countries (37)
Advanced countries (28)
Source: World Bank. World Development Indicators.Note: Number of countries in parentheses.
Source: World Bank. World Development Indicators.Note: Number of countries in parentheses.

Figure A3.1.Market Capitalization, 2005

Source: World Bank.

Note: Excludes Jordan at 293.

Trading volume also varies considerably. Ten of the smaller economy markets have a total trading volume of less than $10 million, while trading volume exceeds $1 billion for four of the countries (Table A3.2).

Table A3.2.Smaller Economy Equity Markets: Trading Volume, 2005
Trading VolumeNumber of Countries
Less than $10 million10
$10 million to $20 million6
$20 million to $100 million9
$100 million to $1 billion12
Greater than $1 billion4
Source: World Bank, World Development Indicators.
Source: World Bank, World Development Indicators.

Smaller economy equity issuance in the two largest international secondary equity markets is much lower than for advanced and emerging market countries (Table A3.3). Only 17 smaller economy companies are listed on the New York Stock Exchange (NYSE) and London Stock Exchange (LSE), and only a small number of smaller economy companies are listed on regional stock markets, such as those in Singapore and South Africa. Most of the home countries of the listed companies are relatively large and advanced compared with the other smaller economies. Of course, the international capitalization of these companies is likely quite large compared with the size of their local equity markets.

Table A3.3.Number of Listed Companies on New York and London Stock Exchanges, 2006
Advanced economies (26)1323180
Large emerging market countries (28)13492
Smaller economies (11)314
Sources: New York Stock Exchange (NYSE) and London Stock Exchange (LSE) websites.Note: All three companies on the NYSE are from Panama, and the LSE-listed companies are from Croatia, Estonia, Jordan, Kenya, Lebanon (two companies), Lithuania, Malawi, Panama, Tunisia, Zambia, and Zimbabwe (three).

Number of countries that list at the NYSE or LSE.

Sources: New York Stock Exchange (NYSE) and London Stock Exchange (LSE) websites.Note: All three companies on the NYSE are from Panama, and the LSE-listed companies are from Croatia, Estonia, Jordan, Kenya, Lebanon (two companies), Lithuania, Malawi, Panama, Tunisia, Zambia, and Zimbabwe (three).

Number of countries that list at the NYSE or LSE.

Box A3.1.Implications of the Literature for Secondary Equity Markets in Smaller Economies

The literature on equity markets in smaller economies is extremely limited. The literature generally suggests that the large emerging market and smaller economy companies rely more on external than internal financing compared with advanced country companies, use short-term debt as the main source of external financing, and use equity as the main source of long-term financing (Singh and Hamid, 1992; Singh, 1995; Glen and Singh, 2003; Mutenheri and Green, 2003). In particular, Yartey (2006) found that short-term debt is the main source of financing, with equity playing a small role.

Market turnover appears to have a bigger impact on economic growth than capitalization. This is one of the few conclusions of the limited number of studies of the impact of stock market development on growth. In a broad review of the literature, Levine and Zervos (1998) find that it is stock market liquidity rather than capitalization that facilitates long-run economic growth, which they attribute to liquidity serving as the better measure of the influence of the stock market on resource allocation. Adjasi and Biekpe (2006) analyze the effect of stock market development on economic growth in 14 African countries and conclude that it (1) operates through the value of shares traded rather than market capitalization, (2) is significant only for upper-middle-income countries, and (3) is significant only for the countries with higher market capitalization.

Equity markets can also enhance financial stability by providing a “spare tire” for corporate financing. The role of financial breadth, or the availability of a broad range of financing alternatives to the corporate sector, is generally recognized as helping limit the impact of a crisis on the real sector. The large output contraction caused by the recent Asian crisis has been attributed in part to the lack of nonbank financing alternatives, whereas nonbank financing helped limit the impact of the slowdown of U.S. bank lending in 1990 that resulted from a collapse in the value of real estate collateral (Greenspan, 1999). Davis (2001) and Davis and Stone (2005) conclude that the existence of active securities markets alongside banks (“multiple avenues of intermediation”) is beneficial to the stability of corporate financing, both during cyclical downturns and during banking and securities market crises. These benefits increase in line with the size of the securities market and intermediated financing, and the proportion of companies with access to both loan and securities markets.

Anecdotal evidence suggests that many companies listed in smaller economy stock markets have a relatively small share “free float,” or traded shares as a proportion of total shares. For example, the three largest companies on the Botswana Stock Exchange have an average free float of only 27 percent, and the average float of the top 10 companies in Fiji is 33 percent, and is much lower for the top three. There is no minimum issuance or minimum float requirement in most of Central America, and the only country to require a minimum issuance amount for equity is Costa Rica (the equivalent of about $2 million). There is very limited float in the Central America stock exchanges, including with respect to some of the largest listed companies.

Further, smaller economy secondary markets seem not to serve as a means of financing. Although crosscountry data are not available for initial public offerings (IPOs) in smaller economy secondary stock markets, reported information for Croatia, Guyana, and Mauritius indicate that IPOs are limited or nonexistent.

Importantly, stock market trading, whether measured as a share of GDP or with respect to market capitalization, is also much lower in smaller economies. Smaller economy and emerging market country secondary market prices also are more volatile (El-Erian and Kumar, 1995). This suggests that in smaller economies it is harder for investors to use secondary markets to exit, and the discipline exerted by secondary markets is relatively limited.

The trends over time of key stock exchange indicators for smaller economies suggest that they are not catching up with emerging market countries. The median number of listed companies across smaller economies rose by two from 36 in 2000 to 38 in 2005, while the median number of listed companies in emerging market stock exchanges actually dropped slightly to 214 (Figure A3.2). Meanwhile, the median across smaller economies of market capitalization rose from 10 percent of GDP in 2000 to 17½ percent in 2005 (Figure A3.3). However, the capitalization of emerging market country stock exchanges nearly doubled to 40 percent of GDP during the same period.

Figure A3.2.Smaller Economies and Emerging Market Countries: Number of Listed Companies


Source: World Bank.

Figure A3.3.Smaller Economies and Emerging Market Countries: Market Capitalization


Source: World Bank.

The median turnover-to-GDP ratio across smaller economies is stagnant and rapidly falling behind that of emerging market countries (Figure A3.4). The ratio is seen as a key indicator of the impact of the secondary market on the economy at large. This indicator is not only much smaller for smaller economies relative to emerging market countries, but it is stagnant, a trend that is at odds with the worldwide deepening of domestic and international markets.

Figure A3.4.Smaller Economies and Emerging Market Countries: Turnover


Source: World Bank.

The presence of a market in smaller economies is related to the size and level of development of the economy. Less than a quarter of countries with a GDP of under $3.6 billion have a secondary market, and less than a third of countries with per capita income of under $3,100 have a stock exchange (Table A3.4).

Table A3.4.Percent Share of Smaller Economies with Equity Market by GDP and GDP Per Capita
Share with Markets
GDP by quintiles
Less than $800 million13.6
$800 million to $3.6 billion23.8
$3.6 billion to $6.8 billion38.1
$6.8 billion to $13.7 billion52.4
Greater than $13.7 billion54.5
GDP per capita by quintiles
Less than $37513.6
$375 to $62538.1
$625 to $1,35033.3
$1,350 to $3,10042.9
Greater than $3,10054.5
Sources: IMF, World Economic Outlook database; and World Bank, World Development Indicators database.
Sources: IMF, World Economic Outlook database; and World Bank, World Development Indicators database.

Case Studies

This annex provides case studies of the stock exchanges of 10 smaller economies.57 They are mostly success stories and thus offer some positive policy lessons, and also serve to demonstrate some of the inherent constraints to market development in smaller economies.


Botswana’s equity market has benefited from extensive government support but it remains relatively undeveloped (Table A3.5). The government’s initiatives include reduction of government loans, establishment of the Botswana Stock Exchange (BSE), public pension reforms, and tax incentives (Bank of Botswana, 2006). However, the value of trades has declined in recent years, and the impact of the equity market on the overall economy is likely to be limited.

Table A3.5.Botswana: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)398.0977.61,268.71,722.82,130.72,548.32,436.7
Market capitalization (percent of GDP)8.318.624.531.827.528.426.1
Listed domestic companies12161618191819
Trades, total value (millions of U.S. dollars)38.047.365.055.386.850.245.1
Trades, total value (percent of GDP)
Turnover ratio (percent)
Sources: World Bank; Botswana Stock Exchange.
Sources: World Bank; Botswana Stock Exchange.

Description of the Equity Market

Activity in capital markets in Botswana has picked up over the past decade. Commercial banks dominate Botswana’s financial sector.58 The rapid growth of pension funds and other government initiatives has broadened domestic capital markets. At the same time, the limited investment opportunities in domestic markets have compelled private fund managers to move a large part of their funds abroad, contributing to a sizable capital account deficit.

The BSE was established in 1989 with only five listed companies. The number of listed companies increased to 28 by end-2005, nine of which are foreign companies. The listed companies represent a wide range of economic sectors, including manufacturing, wholesale/retail, banking, medical services, property, security services, mining, tourism, and information technology. The BSE established the Venture Capital Board in 2001, a separate bourse for newer businesses with a short track record, and it now comprises six companies.

Capitalization has trended upward from the inception of the BSE. The Domestic Companies Index (DCI), the most widely watched price index, gained 74 percent during 2006. Accordingly, market capitalization rose by 77 percent to P 23.7 billion, constituting approximately 50 percent of GDP, which is high relative to other African stock exchanges.

However, the BSE remains illiquid. Even in the most active years there has been an average of only slightly more than 10 trades per working day, and turnover has actually declined in U.S. dollar terms over the past several years. This is partly due to limited free-float shares; the three largest companies on the BSE have an average free float of only 27 percent. On an aggregate basis, the free-float portion was just under P 5 billion, of which pension funds held about half, at end-2005 when the total capitalization was P 13.4 billion. High brokerage fees are also cited as obstacles to greater liquidity.

Large institutional shareholdings are dominant, because the pension reforms (see below) have led to a large injection of funds in capital markets. For example, 90 percent of Sechaba, a brewery company with a relatively large free float of 58 percent, was controlled by only 25 shareholders. This suggests that the general public holds only a small percent of shares.

Market Development Over Time

The Botswana government has employed various initiatives to develop capital markets. The strategy for financial sector reforms was first outlined in the Seventh National Development Plan (1991–97). This and subsequent initiatives have provided good support for development of the capital markets, although further efforts are needed for the markets to become deeper and more liquid (Kim, 2004).

Reduction of Government Financial Arrangements

Botswana started its financial reform program by cutting back government financing. The government began to divest its interests in companies and require parastatals to rely on nongovernment financing. The establishment of the BSE in 1989 (originally as the Botswana Share Market) provided a secondary market for these privatized companies.

Public Pension Reform

The introduction of the defined-contribution pension scheme for public officers in 2001 boosted capital market development (see Poddar, 2002). Pension claims equivalent to 27 percent of GDP were transferred to private fund managers. By 2006, their assets grew to equal those of commercial banks. The funds have been partly invested in the domestic stock market, which boosted the BSE’s DCI. However, with few investment opportunities in the local capital markets, investment abroad has significantly increased. As of end-2006, the pension fund’s investment in Botswana’s equity markets, Botswana’s bonds (including the central bank’s certificates), and offshore investments were P 5.4 billion, P 3.2 billion, and P 18.8 billion, respectively, out of total assets of P 29 billion. Offshore investment has therefore risen to 64.8 percent, approaching the 70 percent prudential ceiling.

Tax Incentives

The authorities provide favorable tax treatment for companies listing on the BSE. These include an exemption from capital gains tax and lower income tax for listed companies. The double-tax burden on dividends was also abolished.

Government Securities Market Reforms

The government has also taken steps to develop domestic bond markets, which in effect benefit capital markets as a whole. In 2003, the government issued two-year, five-year, and 12-year bonds with a total value of P 2.5 billion aimed at developing the domestic capital market, as opposed to fiscal financing. These bonds created a quasi-representative sovereign yield curve as a benchmark for private and parastatal issuers, and they were listed on the BSE in 2005.59 The two-year bond was not rolled over and the five-year bond will be rolled over into securities of different maturities. Meanwhile, Botswana acquired investment-grade sovereign ratings by Moody’s Investors Service and Standard & Poor’s, which also provided a positive signal to potential investors both domestic and abroad.


Efforts are under way to upgrade market infrastructure. Establishment of a central securities depository is being considered by the BSE. In addition, new securities legislation, which is planned to replace the outdated BSE Act, will be aimed at facilitating the trading of all types of bonds on the BSE, introducing electronic trading, and streamlining requirements for BSE members. It will also strengthen provisions to deter market manipulation as well as insider trading. Further, a nonbank financial institutions regulatory authority came into effect in late 2007 and was expected to become fully operational in 2008.

Offshore Financial Center

The International Financial Service Center (IFSC) could also help attract more internationally oriented financial business. The IFSC was established in 1999 with a view to making Botswana the financial service hub for sub-Saharan Africa. IFSC-registered companies can operate a wide variety of financial services, such as foreign currency banking, securities trading, and investment advice, with a preferential tax regime. However, its development has been slow; only 31 companies had been accredited to the IFCS as of 2005, representing a total investment of about P 74 million. This is partly due to the high cost of infrastructure such as telecommunications.


In Botswana, privatization has not yet played a large role in increasing the supply of tradable corporate shares. The government unveiled the Privatization Master Plan in 2005, and this is expected to stimulate the growth of capital markets by making ownership of public institutions available to private investors.

Policy Lessons

  • The government financial sector development strategy has played a positive role.

  • But at the same time, government initiatives alone cannot lead to successful development of markets.

  • More diversified issuers and investors are necessary to realize active equity markets.


Croatia’s equity markets boomed since 2005 but they are still underdeveloped compared with other central and eastern European emerging countries (Table A3.6). Market capitalization and trading surged significantly in a past few years partly owing to recent large IPOs. However, both market capitalization and trading are dominated by a small number of companies. The investor base is limited because only pension funds play a significant role in the recent surge in stock prices. In March 2007, two stock exchanges were merged into one aimed at greater liquidity in equity markets.

Table A3.6.Croatia: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)581.02,742.43,318.63,975.66,125.610,958.612,918.0
Market capitalization (percent of GDP)3.114.916.717.421.331.934.5
Listed domestic companies6164626666145145
Trades, total value (millions of U.S. dollars)47.0188.2117.5146.5237.4494.1798.2
Trades, total value (percent of GDP)
Turnover ratio (percent)
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

The Zagreb Stock Exchange (ZSE), established in 1991, has 145 listed companies, of which market capitalization amounted to 68 percent of GDP in 2006. The ZSE merged with the smaller Varazdin Stock Exchange (VSE) in March 2007. The largest two companies account for more than 20 percent of total capitalization. Liquidity has greatly improved as trading value to GDP increased to 2.1 percent in 2005. However, this is substantially lower than in neighboring stock exchanges, such as Warsaw (trading value to GDP of 106 percent), Budapest (31 percent), and Prague (26 percent). Furthermore, market turnover is also dominated by a few companies, with the largest five companies representing 56 percent of total stock turnover.

Corporate financing through capital markets is quite limited. Despite a recent increase in IPOs and new bond listing, the capital market continues to play a lesser role in corporate finance than banks. In 2005 the ZSE saw four equity public offerings with a value of HRK 231 million, while there have been a total of only 19 equity public offerings since 1998. The bond market at the ZSE is also very thin and dominated by government securities.

Market Development Over Time

Although the ZSE has an advanced trading infrastructure, developments have been limited owing to the small investor base.

Trading Infras tructure

Trading at the ZSE is conducted through an electronic trading system. The brokerages and members of the exchange are connected by special telecommunication links with the exchange headquarters through which they enter their sell or buy orders directly from their offices. There is no single physical place, a traditional trading floor, where trading is conducted.

Investment by Pension Funds

The tight limits on overseas investment by pension funds have led them to invest in domestic markets. Pension assets grew by HRK 3.9 billion in 2005, of which HRK 2.5 billion was invested into domestic equity and bond markets. This contributed to the recent sharp increase in local stock prices. The authorities have started to relax the limits on foreign investment by pension funds.

Merger of Exchanges

As stated above, Croatian equity markets were finally unified in March 2007. The VSE closed its doors and was merged with the ZSE. Because stocks are traded at the single and central marketplace, market participants are able to observe a single trading price for each stock, which will enhance price transparency. It is also expected that the joining of the two order books will promote greater liquidity in the long run.

Policy Lessons

  • Pension funds with a regulatory focus on domestic investment have had a large impact on local stock prices. Though recent events such as large IPOs and the relaxation of investment rules for pension funds are encouraging, a broader investor base is required to sustain expansion of the markets with deeper economic impact.

  • Markets can benefit from an advanced trading infrastructure, which has yet to be fully materialized.


Estonia provides an instructive case for regional integration of capital markets. The integration has been achieved with neighboring Baltic countries with similar market development (Table A3.7). Also, this is a part of the larger regional integration among Nordic and Baltic stock exchanges owned by the OMX group.60 While both markets are currently operated separately owing to a significant difference in development, the long-term goal of the Baltic Market is to merge with the Nordic Market, consisting of exchanges in Denmark, Finland, Sweden, and Iceland.

Table A3.7.Estonia: Stock Market Indicators, 1997–2005
Market capitalization (millions of U.S. dollars)1,101.01,846.01,482.62,429.93,790.46,202.63,495.1
Market capitalization (percent of GDP)22.333.724.834.541.255.226.7
Listed domestic companies27231714141315
Trades, total value (millions of U.S. dollars)1,484.0326.3219.7241.3564.2827.72,478.2
Trades, total value (percent of GDP)
Turnover ratio (percent)18.913.614.918.317.551.1
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

Estonia’s equity market has recently expanded robustly. The rapid rise of the stock index OMXT in the Tallinn Stock Exchange slowed in 2006, reflecting global corrections, but the market still maintains its strong momentum owing to the growth potential in the Baltic region. The average daily turnover of transactions on the stock exchange has also continued to be high, reaching EEK 39 million in 2006. However, turnover has been dominated by the shares of a limited number of companies, such as Tallink, a shipping company, and AS Eesti Telekom.

The stock capitalization amounted to 26 percent of GDP, as of the end of 2005. Nonresident investors, mainly European and some U.S. participants, account for a large part of the capitalization; the share of nonresident holding dropped in 200561 after peaking at 87 percent in 2004, but still remained at about 60 percent in 2006. Among domestic investors, financial and nonfinancial sector companies play a primary role, representing 34 percent of the capitalization, but retail investors account for only 4 percent of the total value.

Market Development Over Time

Estonia’s stock exchange, established in 1996, took an important step with Latvia’s and Lithuania’s markets to provide regional integrated stock markets. In 2004, the Tallinn Stock Exchange (Estonia), the Riga Stock Exchange (Latvia), and the Vilnius Stock Exchange (Lithuania), all of which are owned by OMX group, jointly established the Baltic Market. This promotes greater interest and opportunity for investment in the region as a whole by enabling investors to transact and settle financial products seamlessly between the three countries. It also helps companies raise capital across the region.62 Further, the Baltic Market provides investors with access to more than 80 percent of trades in other larger OMX exchanges in Denmark, Finland, Sweden, and Iceland.

The integrated Baltic Market has continued to take measures to upgrade capital markets in the region. In 2006, a Baltic Fund Center started to provide investment fund performance information in all Baltic countries. This has enabled investors to compare investment funds and fund-management companies. In order to increase the presence and credibility of the Baltic Market, the Baltic Market Awards were introduced in 2006, highlighting best practices among listed companies and member brokers. Looking forward, the Baltic Market plans, among other things, to implement an Alternative Securities Market targeting small and medium-sized companies with lower entry requirements.

Policy Lessons

  • Regional integration can work to develop smaller economies’ equity markets, although its success would depend on history in the region, the degree of development of each member’s market, and a comprehensive strategy.

  • Initiatives and motivations by an owner of exchanges are key for market-led developments.


Fiji’s equity market is quite small and illiquid, and has a high degree of market concentration (see Mala and White, 2006) (Table A3.8). The number of listed companies remains small and liquidity is fairly low. Fiji faces formidable challenges to develop its equity markets.

Table A3.8.Fiji: Stock Market Indicators, 1996–2005
Market capitalization (millions of U.S. dollars)82.0243.9121.4372.7433.0538.7586.7
Market capitalization (percent of GDP)3.914.87.520.619.320.620.9
Listed domestic companies4101415151616
Trades, total value (millions of U.S. dollars)
Trades, total value (percent of GDP)
Turnover ratio (percent)
Sources: World Bank; Mala and White (2006).Note: The increase in market capitalization in 2002 resulted from the listing of a large telecom company.
Sources: World Bank; Mala and White (2006).Note: The increase in market capitalization in 2002 resulted from the listing of a large telecom company.

Description of the Equity Markets

The Suva Stock Exchange (SSE) was established in 1996. The establishment of the Capital Market Development Authority (CMDA), the market regulator, in 1997, helped development of the equity market through licensing intermediaries and enhancing disclosure requirements. In 2000, the SSE was renamed the South Pacific Stock Exchange (SPSE) to foster listing and investing opportunities elsewhere in the South Pacific. Currently, there are 16 companies listed at the SPSE with a market capitalization of $586 million, or approximately 20 percent of GDP. The number of trading sessions has increased from three (Mondays, Tuesdays, and Thursdays) to five per week since 2003.

Market liquidity at the SPSE is quite low. This may be attributed to the limited flotation of listed shares. For example, Amalgamated Telecom Holdings (ATH), the largest company at the SPSE, has only 0.3 percent of its total shares available for trading on the exchange. Also, the SPSE is a highly concentrated market with most of its activities centered on a few listed companies. Only five companies account for nearly 70 percent of market capitalization of the SPSE. In addition, many investors employ a buy and hold strategy.

Low SPSE liquidity also reflects the dominance of family-owned companies and easy availability of bank finance. The majority of businesses in Fiji are family-owned companies that are reluctant to dilute ownership and hesitant to disclose information to the public. It is also fairly easy for companies to obtain bank loans owing to excess liquidity. Even start-up companies can finance themselves through their own savings and borrowing from parent companies.

Market Development Over Time

The government has formulated various strategies, recognizing the development of the stock market as the engine for economic growth, but many challenges still remain.

Trading infrastructure

The number of sessions was increased from three to five weekly in 2003 in response to an increase in trading. But further upgrades of the trading system, such as introduction of an electronic automated system, may not be justified at this moment given the small number of listed companies. In addition, the location of the SPSE could be changed to a more suitable place for ensuring easy access by financial institutions.

Tax Incentives

Listed companies are exempted from paying taxes on dividends. There are no other tax incentives to encourage equity investment.


The privatization of ATH in 2002 more than doubled SPSE capitalization. Nevertheless, market liquidity remains low, reflecting ATH’s very limited free float. The privatization has also caused market concentration to accelerate.

Public Awareness and Education

A lack of public awareness regarding the role of the stock exchange and the benefits of equity investment has likely inhibited market development. Unlisted companies cite a lack of knowledge among potential investors as a key impediment to listing at the SPSE. The CMDA and the SPSE have been initiating some concerted efforts through public seminars, but they appear to be insufficient to date in light of the challenges posed by Fiji’s diversity and geographical dispersion.

Policy Lessons

  • Limited flotation of shares and market concentration constrain market development.

  • Privatization of large state companies can boost market capitalization but not raise market liquidity.

  • The dominance of family-owned companies and the availability of bank finance have impeded market development.


The Guyana Stock Exchange (GSE) is quite underdeveloped (Table A3.9). Although the market has grown considerably in its first three years of existence, it remains quite small with limited economic impact.

Table A3.9.Guyana: Stock Market Indicators, 2003–05
Market capitalization (millions of U.S. dollars)94127187
Market capitalization (percent of GDP)12.716.223.9
Listed domestic companies13911
Trades, total value (millions of U.S. dollars)0.414
Trades, total value (percent of GDP)
Turnover ratio (percent)2.6
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

Only over-the-counter transactions are conducted on the GSE and volume is quite low, thus the economic impact is quite limited. The Guyana Association of Securities Companies and Intermediaries (GASCI) is a “self-regulatory organization” that runs the GSE. Only the four brokers who are both registered with the GSC and are members of GASCI are permitted to trade directly on the stock market, but anyone may place an order with a broker to buy or sell stocks and shares. There do not appear to have been any IPOs conducted via the GSE. As of May 2007, the GASCI Official List included one company and the Secondary List included 13 companies. The number of registered companies and trading volume are very low.

Market Development Over Time

Trading on the Guyana Stock Exchange started in 2003. In the late 1990s the government hired the Adam Smith Institute (ASI) as part of a project funded by the United Kingdom’s Department for International Development (DFID) to formulate the basic components of a stock market. The Securities Industry Act of 1998 provides for the registration of securities brokers and dealers, self-regulatory organizations, and certain issuers of securities, and for the regulation of securities issuances. It was not brought into operation until July 2002 upon the completion of supporting regulations. During 2000–02 the Guyana Securities Council and GASCI were created and provided with ASI technical assistance and budgetary support from DFID.

Market Infrastructure and Trading Systems

Infrastructure and trading systems are quite simple. Trading takes places on Mondays. Brokers execute orders by matching them against outstanding orders on the electronic order book, or, if there is no matching order, they leave their new order exposed on the book to await a matching incoming order when it arrives. Brokers settle with each other on a T+5 “Settlement Date.” GASCI is responsible for drafting the rule book, advising on procedures, devising the trading system, assisting in the development of the software, and in training, testing, and launching.


The GSC is an independent autonomous body whose members are appointed by the Minister of Finance. ASI mandates that the GSC register persons engaged in trading or advising on securities and supervise their activities. GASCI is registered with the GSC to carry on a business as a stock exchange and an association of securities companies and intermediaries. Most of the costs of the GSC and GASCI are paid for by DFID.

Corporate Governance

Corporate reporting and governance is weak. Corporate reporting requirements are not rigidly enforced and company information can be difficult to obtain. A commercial court was only recently established, and the accounting and auditing infrastructure is limited.

Policy Lessons

  • A decision needs to be made on the long-term development potential of the market.

  • Possible links with a larger regional stock market could be considered.


Initiatives by the stock exchange and securities industry have helped the development of equity markets in Jamaica (Table A3.10). In addition, the authorities intend to initiate the integration of regional capital markets among Caribbean countries, although this has yet to be fulfilled.

Table A3.10.Jamaica: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)1,270.03,582.24,702.75,838.08,500.214,414.713,028.0
Market capitalization (percent of GDP)21.844.657.267.9103.2162.6134.4
Listed domestic companies51464242393839
Trades, total value (millions of U.S. dollars)341.075.675.1142.8249.2477.7430.3
Trades, total value (percent of GDP)
Turnover ratio (percent)
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

Jamaica has a well-developed automated stock exchange with high market capitalization. The Jamaica Stock Exchange (JSE), established in 1969 as a center venue of equity markets, currently has 39 listed companies. Recently, trading volume increased significantly, and market capitalization has amounted to about 1.5 times the GDP. However, the financial sector accounts for about 75 percent of market capitalization, followed by the manufacturing sector with 10 percent.

The stock market has benefited from the Jamaica Central Securities Depository (JCSD). The JCSD provides a book entry service for investors, with the number of accounts increasing by 31 percent in 2005 to 79,000. The JCSD has also facilitated an increase in trading and transfer of shares between Jamaica and central securities depositories in Trinidad and Tobago and Barbados. This allows investors to take advantage of market opportunity across borders and prompts regional integration of stock markets.

Market Development Over Time

Not only the JSE’s initiatives but also the recent emergence of the securities industry have contributed to development of Jamaica’s capital markets.

The JSE has taken a number of initiatives aimed at developing capital markets, with an emphasis on promoting the confidence of stakeholders. The JSE, together with the Trinidad and Tobago Stock Exchange, held a trade show in New York to attract international investors to Caribbean markets. This has given further impetus to the integration of regional markets. To facilitate diversification of investment, the JSE and JCSD have proceeded with the implementation of the Fixed-Income Depository System. The JSE also continues to provide market education and training. Further, the Best Practice Awards, launched in 2005, stimulate greater interest by brokers and listed companies to achieve best practices and a high level of compliance.

Emergence of Securities Industry

The emergence of securities dealers, though nascent as an industry with vulnerability, has helped the development of capital markets. The legislation in 2002 separated banking from nonbanking activities, which resulted in the large transfer of funds under management from merchant banks to securities dealers. At the end of 2005, funds under management by securities dealers amounted to J$395 billion, representing 62 percent of GDP, and they now surpass the level of deposits with commercial banks. Dealers have initiated intermediation of these funds into capital markets, and have also encouraged the participation of retail investors. This is expected to stimulate capital markets if the industry addresses its vulnerability and establishes resilience to shocks.


The demutualization of the JSE is under consideration. This would enhance the flexibility and effectiveness of running the exchange. The JSE is assessing the relevant market conditions with a view to final implementation and devoting attention to ensure its independent regulatory position.

Policy Lessons

  • The ambition of the stock exchange to make an integrated market in the region can lead to faster development of equity markets.

  • The securities industry, an intermediary of funds, can add impetus to market development, provided that sound development of the industry is ensured.


The Amman Stock Exchange (ASE), established in 1978, is an active equity market among smaller economies (Table A3.11). The ASE has shown strong performance in both primary and secondary markets with the participation of many foreign investors. This success reflects Jordan’s long-standing market reforms and privatization programs.

Table A3.11.Jordan: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)4,670.04,943.26,315.97,087.010,963.018,383.437,638.8
Market capitalization (percent of GDP)69.458.470.474.1107.9159.6292.7
Listed domestic companies97163161158161192201
Trades, total value (millions of U.S. dollars)626.0415.6933.11,338.12,607.05,327.923,806.6
Trades, total value (percent of GDP)7.74.910.414.025.746.3185.1
Turnover ratio (percent)11.17.716.614.828.936.385.0
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

The ASE has recently revealed strong performance in terms of both price and trading volume (see Saaqdi-Sedik and Petri, 2006). The number of listed companies increased steadily from 163 in 2000 to 201 in 2005. The market is dominated by the banking sector, which represented 62 percent of market capitalization as of end-2005, followed by the service sector (20 percent), industry (16 percent), and insurance (2 percent). The banking sector is itself dominated by Arab Bank, which accounts for 41 percent of the total market capitalization. The top 10 companies represent about 70 percent of the ASE market capitalization. The ASE share price index peaked at a historical high in November 2005, and maintained relatively strong momentum throughout 2006, given increased liquidity and improved economic fundamentals in the region owing to high oil prices. The trading volume also increased substantially, reaching $23.8 billion and 185 percent of GDP in 2005. Accordingly, the ASE market capitalization jumped to $37.6 billion at the end of 2005, constituting 292 percent of GDP.63

The recent large volume of non-Jordanian net purchases has led to a rapid increase in non-Jordanian ownership in the ASE’s stocks. During 2005, the net investment of non-Jordanians in the ASE soared seven times that of the previous year to $293 million, and the net purchases continued during 2006 albeit at a slower pace. As a result, non-Jordanian ownership in the ASE increased to 46 percent at end-2006 from 41 percent at end-2004, more than three-quarters of which may be attributed to investors from neighboring Arab countries. As for Jordanian ownership, individual and corporate investors represent 39 percent, the Social Security Corporation accounts for 11 percent, and the remainder belongs to the government.

The primary markets are benefiting from an active secondary market. In 2005, 64 public shareholding companies issued new shares to raise their capital through private subscription by the existing shareholders and certain investors, at a value of $489 million, compared with 31 companies with a capital of $125 million in 2004. Also, seven new public shareholding companies were registered with total capital of $39 million, while no new shareholding companies were established in 2004.

Market Development Over Time

Equity markets are starting to serve as an alternative source of funding in Jordan. Jordanian corporate sector investment and working capital is traditionally funded mainly from bank credit and retained earnings. Domestic nongovernment bank credit stands at more than 70 percent of GDP, representing a relatively high level among similar-sized countries. In addition, banks likely provide active advisory services to corporates through holding firms’ shares. However, the equity markets are beginning to play a larger role as suggested in vigorous primary markets and increased market capitalization.

Market Reforms

In 1997, the Amman Financial Market, established in 1978, was replaced by three new institutions. The Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Commission (SDC) were newly established. This restructuring, aimed at separating the supervisory and legislative role, entrusted to the JSC, from the executive role of the capital market, assigned to ASE and SDC. Under the new framework, the ASE enhanced transparency of the markets by requiring publication of quarterly data, as well as its oversight function. The ASE also prompted foreign investors’ participation by allowing them to hold majority stakes in all sectors except construction, mining, and commercial service companies.


The government’s privatization program has transformed many public enterprises into listed companies. These include Jordan Telecoms, Jordan Cement Factories, and the Jordan Investment Corporation Portfolio, which have deepened the markets through an increase in the supply of equities. The most prominent case was privatization of Jordan Telecoms, now the fourth-largest listed company by market capitalization.

Investor Base

The Social Security Corporation (SCC) plays a large role in the equity markets. The SCC, a scheme to protect workers under the social security umbrella, has assets of more than 25 percent of GDP. Recently, the SCC has increasingly moved its assets from bank deposits and fixed-income instruments to equity products in order to increase its return potential. Its equity investment reached JD 1.2 billion ($851 million) in 2004 (46 percent of its total assets), representing 11 percent of the ownership in the ASE.

Policy Lessons

  • The government’s privatization program provides opportunities for investing in good-standing companies such as telecoms.

  • Expansion of the investor base and diversification of the profile of listing companies are required for further sustainable development of equity markets.


Trading performance at the Nairobi Stock Exchange (NSE) is relatively strong compared with those of other smaller economies (Table A3.12). A number of initiatives by the NSE, in addition to Kenya’s strong economic growth, supported development of equity markets. The NSE reinforces its activities through a three-year strategic marketing plan, with a view to integrating regional markets in cooperation with neighboring east African countries.

Table A3.12.Kenya: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)1,886.01,283.11,049.81,423.14,178.23,891.06,384.0
Market capitalization (percent of GDP)
Listed domestic companies56575757514747
Trades, total value (millions of U.S. dollars)65.047.539.836.4208.8344.7504.8
Trades, total value (percent of GDP)
Turnover ratio (percent)
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

The NSE consists of two equity markets and a fixed-income securities market. The equity markets are divided into the Main Investment Market Segment (MIMS), the main bourse of the NSE, and the Alternative Investment Market Segment (AIMS), aimed at facilitating new and smaller companies’ access to finance. On the fixed-income securities market, treasury bonds and corporate bonds are traded. There are 47 listed companies at the MIMS, with the number largely unchanged over the past decade. The equity market capitalization and turnover represent 35.5 percent and 2.8 percent of GDP respectively, but they are dominated by the two largest sectors, the “finance and investment sector” and the “industrial and allied sector.”

A cross-listing service with Uganda and Tanzania is provided at the NSE. This facilitates regional capital flows by enabling local firms to list their shares on all three securities exchanges simultaneously. Cross-listed companies, although just a few at the moment, can enjoy a wider capital base as well as the prestige of a regional presence.

Market Development Over Time

The development of Kenya’s equity markets, with its origins dating back 80 years, has accelerated in this decade. After starting stock trading with a gentleman’s agreement in the 1920s, when the country was still a British colony, the NSE was officially constituted as a voluntary association of stockbrokers in 1954. Since the 1990s, the NSE has undertaken extensive modernization efforts along with government-led market reforms. Most recently, the NSE presented a three-year corporate plan for 2006–08 with two clear strategic objectives: (1) to increase trading activity and the size of the market, and (2) to demutualize the organization by the end of 2007.

Facilitation of Foreign Ownership

The government has encouraged foreign ownership thorough repeated deregulations. The limit of foreign ownership was relaxed from 20 percent as of 1995 to 75 percent in 2002. Also, a restriction on the amount to be held by a single foreign investor was abolished (the previous ceiling was 2.5 percent of total shares). In addition, most exchange controls were abolished in 1995.

Trading Infras tructure

Trading infrastructures have been modernized. The NSE implemented a new trading cycle, T+5, in 2000. After the Central Depository System Act was passed, the Central Depository and Settlement Corporation (CDSC) became the legal entity that owns and runs the clearing, settlement, depository, and registry system for securities traded in Kenya. In order to boost liquidity in the capital markets and to enhance the price discovery function, the NSE implemented the Automated Trading System (ATS) in 2006, which is fully compatible with the CDSC.64


The NSE, the Uganda Securities Exchange (USE), and the Dar es Salaam Stock Exchange, Tanzania, have established cross-listing across the three exchanges. This aims to attract regional flows of capital to enhance economic developments in the area. Currently, two companies’ primary listing on the NSE is cross-listed on all the three exchanges: Kenya Airways and East African Breweries. The cross-listing initiative was reinforced through the memorandum of understanding (MOU) between the NSE and USE, which was signed in 2006.

Marketing Activities

The NSE has promoted improvements in corporate governance and investor education. The NSE is committed to the continuous development of corporate governance through initiatives including the “FiRe Award,” which is given to a company with excellent governance and financial reporting. This is designed to enhance the Corporate Governance Guidelineissued by the Capital Market Authority. The NSE is also committed to the Youth Investment Education Program, which recognizes that youth under 30 years of age constitute more than 70 percent of Kenya’s population and that they have thepotential to make a significant contribution to the economic development of the nation.


Demutualization may be a key milestone for the NSE. The purpose of the demutualization is to promote the strategic activities of the NSE by identifying and separating ownership and management rights from the execution of daily trading on the exchange. Shares of the NSE itself could even be listed if the ownership wishes.

Policy Lessons

  • A medium-term strategy for the exchange can clarify objectives and identify useful measures for developing markets. An organizational change such as demutualization may reinforce the exchange’s efforts to promote market reforms.

  • A move toward regional market integration, although a small step, may supplement market development through continuous cooperation with neighboring countries.


The Stock Exchange of Mauritius Ltd. (SEM) seems not to have realized its full potential (Table A3.13). The technical infrastructure of the SEM is modern and efficient and many supporting laws have been passed. However, the market is characterized by low volume, shallowness, and poor liquidity, and the number of companies listing on the SEM appears to have pla-teaued (Kim and Yao, 2005). The slow growth of the SEM, notwithstanding the solid laws and strong market infrastructure, can be attributed to the relatively small size of Mauritius, family ownership, and the slow pace of policy implementation.

Table A3.13.Mauritius: Stock Market Indicators, 1994–2004
Market capitalization (millions of U.S. dollars)1,5101,6421,3311,0631,3281,9552,3792,617
Market capitalization (percent of GDP)44.838.629.823.429.237.339.440.6
Listed domestic companies3541404040404142
Trades, total value (millions of U.S. dollars)857675112579995151
Trades, total value (percent of GDP)
Turnover ratio (percent) 56.1
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

The SEM operates two markets: the Official Market and the Development & Enterprise Market (DEM). Currently, there are 40 companies listed on the Official Market, representing a market capitalization of nearly $3.9 billion as of March 2007, with financial companies accounting for about 40 percent. There are 80 licensed capital market operators, including stockbrokers, fund managers, and investment schemes. Treasury bill trading on the market began in December 2003 with aview to developing an active secondary market for government instruments. The Stock Exchange is marginally profitable, generating MUR 12.3 million ($396,620) in net profit after tax for 2005/2006, of which 40 percent was distributed in dividends. Net foreign portfolio flows during 2005–06 increased to $42 million, the highest on record.

The broad economic impact of the SEM is likely to be limited. Less than 10 percent of the 450 large companies (defined as those with a turnover of more than MUR 80 million) list on the stock exchange and the market turnover ratio is not high. There has been only one IPO in the past several years, and that company has now delisted. Many of the companies listed on the exchange are controlled by a dominant shareholder, often a family-owned conglomerate, and free floats appear to be relatively low.

Market Development Over Time

The SEM was incorporated in Mauritius in March 1989 as a private limited company and opened to foreign investors in 1994. When the Official Market started its operations in 1989, there were five listed companies with a market capitalization of nearly $92 million.

Infrastructure and Trading Systems

Infrastructure and trading systems are advanced. The CDS was initiated in January 1997 with the Bank of Mauritius as the clearing bank. It provides delivery versus payment on a T+3 rolling basis and a Guarantee Fund Mechanism to guarantee settlement failures of participants. The automated trading system began operation in June 2001 and conducts trading through dedicated workstations located at intermediary dealers and linked by communication lines to the SEM. Capital gains and dividends are not taxed.

Market Reforms

The DEM aimed at SMEs was established in August 2006. As of May 2007, there were 50 companies listed on the DEM with a market capitalization of $1.5 billion. DEM listed companies must have a minimum market capitalization of MUR 20 million (about $600,000 as of May 2007), at least 100 shareholders, a minimum free float of 10 percent, and published accounts for at least one year prepared in accordance with International Financial Reporting Standards and audited without qualification.

The SEM joined the internationally recognized World Federation of Exchanges (WFE) in 2005. The exchange is only the second bourse in sub-Saharan Africa after Johannesburg to join the group. The WFE examined the SEM to verify its conformity with 20 criteria, including technological capability and organizational, regulatory, and supervisory infrastructure. The SEM joined the WFE with a view to attracting more foreign investors (the SEM opened to foreign investors in 1994).

Corporate Governance

Corporate governance is improving for private sector companies. The Companies Act 2001, new listing rules, and the consolidation of financial regulation within the Financial Services Commission (FSC) have enhanced shareholder protection and contributed significantly to corporate governance improvements. A Code of Corporate Governance, based on OECD Principles, was adopted in 2003 in the context of the publication of a “Corporate Governance Report on the Observance of Standards and Codes” (ROSC; World Bank). All designated companies (private and public) must either comply with the code or explain why they have not complied. The code has been seen as a success with respect to many private companies, but appears not to have led to improved governance of family and state-owned enterprises.


The SEM operates under the control and supervision of the FSC. The FSC has ultimate oversight of the regulatory function of the SEM but delegates many regulatory functions to the SEM as “frontline” regulator of its listed companies and market intermediaries. The FSC has increased staff and training, and now conducts regular on- and off-site surveillance of market intermediaries. However, the allocation of regulatory authority for securities market activities among the Bank of Mauritius (BOM), the FSC, and the SEM is still unclear, including with respect to the interests of SEM shareholders and listed companies.

Policy Implementation

In many areas, implementation of policy reforms that could be expected to deepen the equity market has been slow. Inadequate staffing of the Financial Reporting Council has slowed implementation of the Financial Reporting Act. Key positions on important committees (the National Pensions Fund, the Financial Services Consultative Committee) have not been filled. The MOU between the BOM and the FSC was signed in December 2002 but has yet to be implemented. Implementation of the insurance and securities acts of 2005 has been delayed.

Policy Lessons

  • Important reforms have been enacted on a “top-down” basis often with foreign assistance, and actual implementation of the reforms has been quite slow, reflecting capacity constraints.

  • The high concentration of family ownership and large conglomerates has slowed the pace of improvement in corporate governance.

Sri Lanka

The 110-year-old Colombo Stock Exchange (CSE) has greatly contributed to development of equity markets (Table A3.14). Despite increased political and security concerns, the CSE has recently exhibited one of the best performances in the region. This is largely led by domestic investors, particularly retail investors, who have been influenced by the CSE’s initiatives.

Table A3.14.Sri Lanka: Stock Market Indicators, 1995–2005
Market capitalization (millions of U.S. dollars)1,998.01,074.11,331.51,681.12,711.13,657.05,720.0
Market capitalization (percent of GDP)
Listed domestic companies226239238238244245239
Trades, total value (millions of U.S. dollars)221.0144.2153.4318.0769.2582.21,138.0
Trades, total value (percent of GDP)
Turnover ratio (percent)
Source: World Bank.
Source: World Bank.

Description of the Equity Markets

The CSE, with more than 230 companies listed, has grown rapidly and significantly both in price and liquidity. In 2006, the All Share Price Index (ASPI) surged by more than 40 percent to a historically high level, owing to improved economic conditions and strong corporate earnings. The liquidity indicator also shows a strong performance because a high average daily turnover has been maintained. The market capitalization increased to $5.7 billion as of end-2005, representing 24 percent of GDP, which was close to the amount of domestic credit to the private sector.

Domestic investors have been the main contributors to market turnover, followed by the increasing involvement of foreign investors. The former account for more than 75 percent of purchases. In particular, retail investor participation remains high compared to corporate and institutional investors. Meanwhile, the strong domestic market influences foreign investors, who account for about 20 percent of market turnover with net purchases amounting to $62 million in 2005. A significant event was the California Public Employees’ Retirement System (CALPERS), the largest public pension fund in the United States, including Sri Lanka in its emerging markets investment eligibility list in 2005.

Primary market activities have also trended upward in tandem with an active secondary market. In 2005, $138 million was raised in the primary market, the largest mobilization of funds through the stock market. This was largely due to the listing of Dialog Telekom Ltd., which accounted for $85 million of the funds raised. The CSE continues to take several measures to make listing attractive, such as a clinical approach to potential companies. The CSE also plans to relaunch the Second Board as the “DiriSavi” Board, meaning “assisting effort,” in order to encourage smaller and medium-sized companies to list.65

Market Development Over Time

The CSE’s extensive initiatives have led to the high performance of the markets. The CSE, with its origins dating back to 1896, was incorporated in 1982, and became a formal stock exchange in 1995. Since then, the CSE has initiated a number of measures to improve the stock market.


The CSE’s various marketing activities attract issuers and investors. The Issuer Relationship Division of the CSE establishes close relationships with companies and assists them throughout the listing process in cooperation with professionals such as accountants and auditors. On the investor side, the CSE conducts trade shows abroad to attract nonresident investors, mainly Sri Lankan expatriates. In 2005, the events were held in the United Arab Emirates, Australia, and New Zealand, which helped to increase investment inflows substantially. Further, the CSE hosted 243 seminars and workshops in 2005, reaching 10,500 participants, to enhance equity market awareness among current and potential investors.

Branch Network

The CSE has an effective branch network to facilitate local investor participation. The CSE established its first branch in 1999 and opened the third one in 2005. Approximately 10,000 new investment accounts were opened through branches in 2005, which represented more than 20 percent of new domestic retail accounts in the year. Also, the CSE’s branch network and its trading floor have accounted for about 10 percent of total turnover, helping geographical diversification of capital markets.

Investment Instruments

The CSE provides numerous investment instruments with different risk return profiles. This is initiated by the idea that different types of instruments complement and benefit each other if they are traded in a single market place. The first such measure was the introduction of the Debt Trading System, which provides an automated trading system for both government and corporate debt securities. The CSE also plans to implement a Securities Borrowing and Lending System to improve liquidity and the price discovery function. Further, the CSE conducts several derivative training programs for market participants with a view to expanding the derivatives markets.

Settlement System and IT Infrastructure

The CSE has enhanced its settlement system and information technology (IT) infrastructures to meet international standards. The CSE reduced the settlement cycle twice in 2005 by two days, thereby making the cycle T+3 (buyer) and T+4 (seller and participants). A further reduction has been proposed but is yet to be implemented. The interparticipant fund settlement of equity transactions directly through the real-time gross settlement system (RTGS) of the Central Bank of Sri Lanka is under consideration, and the introduction of a delivery versus payment settlement system for equities is also planned. To improve system reliability, the CSE continues to invest in IT infrastructures, recording an uptime of 99.6 percent in 2005, which satisfies international standards.


The CSE is planning to demutualize the organization to enhance adaptability to the changing environment. This will require amendments to be made to the Securities Act and Company Act. Further, member firms should decide the model for the distribution of shares in the demutalized exchange.

Policy Lessons

  • Market initiatives mainly taken by the stock exchange may be a driving force for developing equity markets.

  • Domestic individual investors, in addition to foreign investors, can form an important part of the investor base.

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