Ghana Stock Exchange (GSE) is taking steps to obtain self-regulatory status from the Securities and Exchange Commission (SEC) to enhance investor confidence in the commercial paper (CP) market. The move comes ahead of the launch of the CP market later this year. By aligning its regulations with global markets, GSE aims to create a transparent and competitive environment for issuers and investors.
The desire for self-regulatory status was emphasized by Abena Amoah, GSE Managing Director, during an industry engagement event called Developing a commercial paper market in Ghana. Amoah stated that GSE is seeking self-regulatory status so that the Ghana Fixed Income Market (GFIM) can oversee the CP market and simplify the regulatory framework.
If granted self-regulatory status, GSE, through GFIM, will have oversight and regulatory control over the CP market. This streamlined process will allow GSE to approve CP issuances and secondary listings and trading without requiring SEC approval, thereby boosting efficiency.
The primary objective of obtaining self-regulatory status is to enhance transparency and foster confidence among investors. Currently, pension funds with substantial assets are reluctant to invest in commercial papers due to the lack of visibility and transparency in pricing. By bringing the CP market under GFIM’s supervision, it is anticipated that more pension funds will be encouraged to invest, thereby stimulating overall market growth.
The MD stressed that the goal is to give investors confidence in the market and enable pension funds to invest in commercial papers. Ms. Amoah stated, What we are doing is meant to give investors confidence to come onto the market… when we organize and bring the market under the supervision of the GFIM, it means that some of the GH¢50 billion in AUM held by the pension funds will be placed on the CP market.
Commercial papers are crucial for businesses and institutions that require short-term financing. The CP market offers an alternative option for companies that struggle to qualify for traditional bank loans. To ensure investor confidence, CP issuers will be required to meet specific qualifications and provide comprehensive documentation about the company’s directors, potential risks, and actions in case of default.
Obtaining self-regulatory status for GSE will not only boost investor confidence but also streamline the approval process for CP issuances, making it more efficient for companies to access short-term funding. Moreover, GFIM’s oversight will create a transparent and competitive market environment, facilitating the trading of CP securities in the secondary market.
Kobby Bentsi-Enchil, Head of Investment Banking at Stanbic Bank Ghana, highlighted the benefits of a well-established CP market for both borrowers and investors. The CP market provides diversification away from government exposure and T-bill investments, offering attractive direct investment opportunities for banks and well-run corporations.
In terms of liquidity, Bentsi-Enchil emphasized that all commercial papers will be listed on the exchange, allowing investors to quickly retrieve their investments. This enhanced liquidity will make the CP market a favorable avenue for companies seeking short-term financing, while the bond market remains a more appropriate option for long-term funding needs.
With appropriate regulations and education about available opportunities, Ghana’s financial growth can receive a significant boost through a well-functioning CP market. The timing seems ideal, considering recent events and the increasing need for alternative investment avenues.
In summary, Ghana Stock Exchange’s pursuit of self-regulatory status from the SEC for the commercial paper market aims to enhance investor confidence and create a transparent and competitive environment. Obtaining this status will simplify the regulatory framework, streamline the approval process, and encourage pension funds to invest in commercial papers. It is expected that an organized and supervised CP market under GFIM’s oversight will contribute to overall market growth and make Ghana’s financial sector more robust.
