MAKERERE UNIVERSITY
LISTING REQUIREMENTS AND THE GROWTH OF UGANDA SECURITIES
EXCHANGE
By
ABWAKAT DENNIS ARTHAR
06/U/9414/EXT
A RESEARCH REPORT SUBMITTED IN PARTIAL FUFILLMENT FOR THE AWARD
OF A BACHELORS’ DEGREE OF COMMERCE MAKERERE UNIVERSITY
JUNE, 2011
DECLARATION
I declare that this research on Listing Requirements and the
growth of Uganda Securities Exchange is a result of my own
independent research and has therefore not been presented in any
other institution by any other person. Where the work of others has
been consulted, due acknowledgement has been made.
Signature……………………………………….. Date……………………………………..
Abwakat Dennis Arthar
06/U/9414/EXT
APPROVAL
This is to certify that this research report has been completed
and ready for submission to the university with my approval as a
university supervisor.
Signature……………………………………………. Date………………………………
MR. BAKUNDANA MARTIN
DEDICATION
This project is dedicated to my family members especially to mum
and dad, Mr. and Mrs. Okwalinga, siblings, for all you have been
and all you are, God richly bless and keep you.
ACKNOWLEDGEMENTS
Most importantly thanks to God, without whom I would not have
been doing this project report. For the continued providence,
divine strength, the answered prayers, the favor, I am
grateful.
To my parents, for their continued support and contribution, mum
for the toil and hard work just to make sure I am in school, dad
for always supporting me, thank you for standing with me and for
all your prayers. To all my brothers and sisters, Juventine,
Rachel, Sam, Emma, and Becky, thank you for your prayers and it’s
because of you that I have a reason to work hard.
In a special way Uncle Peter Okello and wife Jessica, you have
been a blessing and an inspiration to me, may the Almighty bless
your family, and may you live to see the favor of the Lord every
day.
To all my special friends, Phillip, Desire, Levin, Byron, Tony,
Eky, Jackie, Rachel, Winnie, Shaba, Harry and Doreen, thank you for
being there for me, Desire thank you for all the help and support
you gave me, Phillip for the laptop, you are a friend indeed. John
the finance class leader, Mr. Steve at the USE, for helping with
the questionnaires, inviting me to witness the trading, and all
stock brokers at USE, the CMA staff, everyone who filled out the
questionnaires.
Appreciation also goes to Mr. Bakundana Martin, my supervisor,
thank you for being a supervisor and not a commander, without your
parental guidance, I would have not been able to come up with this.
Allow me to say, you are the best supervisor I have ever met. God
bless you in all your endeavors.
Lastly to everyone who made this possible for me, my classmates,
teaching staff, family, friends, thank you very much. May the
Almighty richly bless you all!
TABLE OF CONTENTS
iDECLARATION
iiAPPROVAL
iiiDEDICATION
ivACKNOWLEDGEMENTS
vTABLE OF CONTENTS
ixLIST OF TABLES
xLIST OF ABBREVIATIONS AND ACCRONYMS
xiiABSTRACT
1CHAPTER ONE
1INTRODUCTION
11.1 BACKGROUND
31.2 STATEMENT OF THE PROBLEM
31.3 PURPOSE OF THE STUDY
41.4 RESEARCH OBJECTIVES
41.5 RESEARCH QUESTIONS
41.6 SCOPE OF THE STUDY
41.6.1 Geographical scope
41.6.2 Time scope
41.6.3 Subject scope
51.7 SIGNIFICANCE OF THE STUDY
6CHAPTER TWO
6LITERATURE REVIEW
62.1 INTRODUCTION
62.2 LISTING REQUIREMENTS
72.2.1 Listing Requirements for all segments
82.2.2 Specific listing requirements
82.2.3 Requirements for MIMS
92.2.4 Requirements specific to AIMS
92.2.5 Listing requirements for FISMS
92.2.6 Procedure for listing government securities
102.2.7 Cross Listing
102.2.8 Continuing listing requirements
102.2.9 Costs of Listing
112.2.10 The Listing Process
112.3 SECURITIES EXCHANGE
122.3.1 Role of Securities Exchanges
132.3.2 Trend of growth of Uganda Securities Exchange
142.3.3 Functions of the USE
152.3.4 Benefits of getting listed on the USE
152.4 RELATIONSHIP BETWEEN LISTING REQUIREMENTS AND THE GROWTH
OF UGANDA SECURITIES EXCHANGE
162.5 CONCLUSION
17CHAPTER THREE
17METHODOLOGY
173.1 Introduction
173.2 Research Design
173.3 Study Population
173.4 Sample Size
183.5 Sampling Design and Procedures
183.6 Data Sources
183.6.2 Secondary Data Sources
193.7 Data Collection Instruments
193.7.1 Questionnaire
193.7.2 Interview method
193.7.3 Observation Method
193.8 Data Processing Analysis and Presentation
193.8.1 Data Processing
193.8.2 Data Analysis
203.8.3 Data Presentation
203.9 Limitations of the Study
21CHAPTER FOUR
21PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
214.1 INTRODUCTION
214.2 Background information
214.2.1 Findings on the gender of respondents.
224.2.3 Findings on the level of education of the
respondents
234.2.4 Findings by Position held
234.3 Findings on listing requirements
234.3.1 Findings on efficient listing requirements attracting
more listings on the USE
244.3.2 Findings on Lenient listing requirements being ideal for
the growth of the USE
244.3.3 Findings on stringent listing requirements as the best
option to effect efficiency
254.4 Findings on the growth of Uganda Stock Exchange
254.4.1 Findings on the USE registering positive growth in terms
of listing since its inception in 1998
264.4.2 Findings on increase in public awareness increasing the
listings on the USE and thus enhance growth
264.4.3 Findings on increase in the number of listed companies
as an indicator of growth on the USE
274.4.4 Findings on number of listings as the ideal measure of
growth of the USE
29CHAPTER FIVE
29SUMMARY, CONCLUSIONS, RECOMMENDATIONS AND AREAS OF FURTHER
RESEARCH
295.0 INTRODUCTION
295.1 SUMMARY OF FINDINGS
295.1.1 Findings on listing requirements
295.1.2 Findings on the growth of the USE
305.1.3 Findings on the relationship between listing
requirements and the growth of the USE
305.2 CONCLUSIONS
305.2.1 Conclusions on listing requirements
305.2.2 Conclusions on the growth of the USE
305.2.3 Conclusions on the relationship between listing
requirements and the growth of the USE
305.3 RECOMMENDATIONS
315.4 AREAS OF FURTHER RESEARCH
32REFERENCES
35APPENDICIES
LIST OF TABLES
13Table 1; Broker dealers on the Uganda Securities Exchange
TOC \h \z \c "3."
18Table 3. 1; Showing the sample size of the study
TOC \h \z \c "4."
21Table 4. 1; Showing respondents’ gender
22Table 4. 2; Showing the age of the respondents
22Table 4. 3: Showing the Level of Education of the
respondents
23Table 4. 4: Showing the Position held at the Uganda Securities
Exchange
23Table 4. 5; Showing efficient listing requirements attracting
more listings on the USE
24Table 4. 6; Showing lenient listing requirements being ideal
for the growth of the USE
24Table 4. 7; Showing stringent listing requirements as the best
option to effect efficiency
25Table 4. 8; Showing the USE registering positive growth in
terms of listing since its inception in 1998
26Table 4. 9; Showing increase in public awareness increasing
the listings on the USE and thus enhance growth
26Table 4. 10; Showing increase in the number of listed
companies as an indicator of growth on the USE
27Table 4. 11; Showing number of listings as the ideal measure
of growth of the USE
LIST OF ABBREVIATIONS AND ACCRONYMS
USE
Uganda Securities Exchange
CMA
Capital Markets Authority
AIMS
Alternative Investment Market segment
MIMS
Main Investment market Segment
FIMS
Fixed Income Securities Market Segment
IPO
Initial Public Offer
NASDAQNational Association of Securities Dealers Automated
Quotations
NSE
Nairobi Securities Exchange
ALSI
All share Index
EAC
East African Community
CMSA
Capital Markets Securities Authority
EADB
East African development Bank
BAT
British American Tobacco
PTA
Preferential Trade Areas
EABL
East African Breweries Limited
BOBU
Bank of Baroda Uganda
KA
Kenya Airways
SME
Small and Medium Enterprises
BOU
Bank of Uganda
NSSF
National Social Security Fund
SCD
Securities Central Depository
DVP
Delivery versus Payment
NBO
New Business Online
ABSTRACT
The objective of this project report was to investigate listing
requirements and the growth of the Uganda Securities Exchange
(USE). The researcher was concerned about how listing requirements
have had an impact on the growth of the USE.
Literature was reviewed on the various forms of listing
requirements on the USE and several other securities exchange
markets, the functions, role, listings and the trend of growth on
the USE as well as how listing requirements have brought about
growth of the USE.
The findings predict that listing requirements need to be
efficient for them to register positive growth. The findings also
suggest that periodic review of the requirements and increased
public awareness would enhance growth. Different perceptions were
obtained from the respondents through structured questionnaires.
Tables and percentages were used to interpret the various responses
from respondents, while correlation analysis was used to establish
the relationship between listing requirements and the growth of
USE. The findings revealed that listing requirements can be
efficient in bringing about growth of the USE.
Further research was recommended on the reason why other
companies are still reluctant to list on the USE, other factors
that affect the growth of the USE other than listing requirements
and comparing the growth of the USE and other East African
countries’ securities exchange
CHAPTER ONEINTRODUCTION
1.1 BACKGROUND
In 1996, the three East African (EA) countries formed the East
African Co-operation, mainly to reestablish once again the regional
cooperation that had come to an end in 1977. This was superseded by
the creation of the East African Community (EAC) in 1999. Prior to
the signing of the treaty of the EAC in 2000, each of the three EA
countries established a securities regulatory authority, the
Capital Markets Authority (CMA), of Kenya and Uganda and the
Capital Markets and Securities Authority (CMSA) of Tanzania. The
three bodies entered a memorandum of understanding in September
1997 and also adopted a common blue print on the integration of the
E.A. Capital Markets. The earliest of the three Stock Exchanges is
the Nairobi Stock Exchange (NSE), informally originating back in
the 1920’s and then formally established in 1954, by 2002, they had
54 listed companies, 32 listed government and private sector
bonds.
In Uganda, for a company to raise capital by issuing securities
to the general public, and provide investors with a mechanism to
sell the securities they purchased, the company should be listed on
the Uganda Securities Exchange (USE). This listing is governed by
rules and regulations of exchange, the provisions by the CMA Act,
Cap 84 laws of Uganda 2000, the CMA regulations 1999 and the
companies Act, Cap 110 laws of Uganda 2000. Getting Listed on USE
(2000). It is also permissible to list securities while the company
itself is not listed and the securities will be admitted to the
Official List of the Exchange, for instance corporate bonds.
The CMA was established in 1996 following the enactment of the
CMA statute. It’s a semi-autonomous body responsible for promoting,
developing and regulating the capital markets industry in Uganda,
with the overall objectives of investor protection and market
efficiency. Capital Markets Regulator 2010.
In January 1998, a bell rang on one morning at the basement of
East African Development Bank (EADB) and the first securities
exchanged on the USE, it was the Uganda shillings Ten Billion Four
Years EADB Bond. The Five year Uganda shillings Eight point three
billion PTA Bond, was listed in 1999. USE’s first equity was Uganda
clays limited share floatation and was listed in 2000 with British
American Tobacco (BAT) Limited was on floatation the same year.
2001 saw the first cross boarder listing, East African Breweries
Limited (EABL). Kenya Airways (KA) was the second in 2002. Bank of
Baroda Uganda Limited (BOBU) was the first commercial bank to offer
its listings in2003 and it’s the same year that the USE share index
was launched. The first Government bond to be part of the USE list
was the two year, Uganda shillings twenty billion twenty percent
Coupon Rate Treasury bond in 2004.
The USE recently is in pursuance of its mission to develop and
manage the most efficient and transparent securities market that
matches the best International Standards and its objectives of
fostering investor protection has undertaken reviews of portions of
its rules. USE Annual Report 2008.
1.2 STATEMENT OF THE PROBLEM
Listing requirements are the criteria set by the stock exchange
to list the stock of a public company on that exchange. Revised
listings rules have an effect on the regulatory environment for
listed companies and establish minimum requirements for listing.
The Nairobi Stock Exchange Annual Report (2001)
The USE in its effort to enhance growth, has from time to time
reviewed its listing requirements to ensure efficiency and the
interests of the investing public are protected. USE Annual, Report
(2008)
The USE still faces a challenge of increasing listings, because
of the listing requirements. With stringent Listing Rules on the
Main Market Segment (MIMS), the exchange has to attract private
company listings on the Alternative Market Segment (AIMS). In
efforts to attract listings on its AIMS, USE initiated a Small
Medium Enterprise (SME) re launch program aimed at encouraging
companies form the private sector to raise capital through the
Capital Markets. The first phase of this program which entailed a
feasibility study to identify privately owned companies eligible
for listing was completed in which forty one companies were
identified as eligible. The next phase of the SME program to wish
the eligible companies will begin in the first quarter of 2010.
Samwiri H.K. Njuki, Chairman USE.
1.3 PURPOSE OF THE STUDY
The purpose of this study is to establish the relationship
between listing requirements and the growth of the Uganda
Securities Exchange.
1.4 RESEARCH OBJECTIVES
i. To examine listing requirements of USE.
ii. To examine the extent of growth of USE.
iii. To establish the relationship between listing requirements
and the growth of the USE.
1.5 RESEARCH QUESTIONS
i. What are the listing requirements of USE?
ii. What is the extent of growth of the USE?
iii. What is the relationship between listing requirements and
the growth of USE?
1.6 SCOPE OF THE STUDY
1.6.1 Geographical scope
The study reviews listing requirements and the growth of Uganda
Securities Exchange and carried out among stock brokers, advisors,
and market regulators
1.6.2 Time scope
Using a cross sectional research design, the researcher carried
out the study on Listing requirements and the growth of the USE
between the period of March and June 2011, thus covering three
months. The literature reviewed however covers a period of 10
years
1.6.3 Subject scope
The research carried out will be limited to listing requirements
and the growth of the Uganda Securities Exchange.
1.7 SIGNIFICANCE OF THE STUDY
i. The study will provide information to companies and the
public by giving increased insight and knowledge that will help
explain the listing requirements of securities and the growth of
the USE.
ii. The study will also be useful to scholars, corporations,
students of business studies and other financial institutions in
their quest for knowledge and academic research work.
iii. The study helps organizations understand the requirements
for listing, and listed organizations how to remain listed.
iv. The study will give to the listing public confidence in the
measures taken by the regulatory authorities to protect their
investments.
CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
This chapter considers the literature relevant to the study
obtained from journals, libraries and internet searches in line
with listing requirements and the growth of Uganda securities
Exchange.
2.2 LISTING REQUIREMENTS
In order for a company to raise capital through the Uganda
Securities Exchange by issuing Securities, the company or the
securities must be listed on the Exchange. Listing on the Exchange
is governed by the Listing Rules of the Exchange.
Definition
Listing Requirements are Rules and Regulations that a Company
must comply with in order to qualify for participating in the
Securities Exchange. Securities are in line with shares and
bonds.
Listing requirements are the criteria set by the stock exchange
to list the stock of a public company on that exchange. The listing
requirements are periodically updated. An exchange can delist a
company that no longer meets the exchanges, there are listing fees
and periodic reporting requirements. To encourage listings, listing
fees should substantially be reduced. Cohn R. (2000)
Listing requirements are a set of rules or conditions imposed by
a given stock exchange upon companies that want to be listed on
that exchange. Such conditions sometimes include minimum number of
shares outstanding, minimum market capitalization and minimum
annual income. Wikipedia (2010)
To be able to trade a security on a certain stock exchange, a
company has to be listed there and the listing requirements
include; minimums for revenue earnings, market capitalization and
the share price for exchanges like the American stock exchange
which are easier for smaller companies. Investor Glossary
(2010)
Companies have to meet the requirements of the exchange in order
to have their stocks and shares listed and traded there, but
requirements vary by the stock exchange such as;
a) NASDAQ Stock Exchange; For a company to be listed, it must
have issued at least 1.25 million shares of stock worth 70 million
dollars and must have earned more than 11 million over the last
three years.
b) Bombay stock exchange has requirements for a minimum market
capitalization Rs 250 million and a minimum public float.
c) New York Stock Exchange requires a company to have issued at
least a million dollars of stock worth 100 million dollars and must
have earned more than 10 million dollars over the last three
years.
d) London Stock Exchange has requirements for a minimum market
capitalization 700,000 pounds three years of audited financial
statements, minimum public float and sufficient working capital for
at least 12 months from the date of listing.
2.2.1 Listing Requirements for all segments
According to Kato (2005), a company needs to fulfill the
following listing requirements in order to be efficiently listed on
the securities exchange; certificate of incorporation, financial
requirements, status of securities, directors and senior management
expertise and experience, securities commission authorization, and
finally disclosure of company information.
2.2.2 Specific listing requirements
Before discussing the requirements necessary for listing, it
would be prudent to note that securities can be listed under
various categories.
According to Getting Listed on the USE (2000), the USE has two
broad categories of securities, that is; equity and debt (bonds).
When applying for listing, a company or its security will qualify
for one of three possible listings: two segments under equity that
is the Main Investment Market Segment (MIMS) and the Alternative
Investment Market Segment (AIMS), the difference being the
disclosure requirements with the MIMS having more stringent
requirements than the AIMS. The other is the debt segment that is
referred to as the Fixed Income Securities Market Segment (FIMS)
which caters for corporate and government bond issues, debentures
stocks, preference shares and any other fixed income
instruments.
2.2.3 Requirements for MIMS
The conditions that must be fulfilled to qualify for a main
market listing are more stringent than those for the alternative
investment market listing. Among these include; the issuer being a
public company registered under the companies Act, Cap 110, a
minimum capital requirement, published audited financial statements
for a period of at least five years, at least 20% of the shares of
the issuer should be offered to the public, shares should be held
by at least 1000 persons, a letter of no objection from the
relevant regulatory authority, and must comply with the detailed
disclosure requirements for MIMS as specified in Appendix q of the
Listing Rules.
2.2.4 Requirements specific to AIMS
Recognizing the need to encourage the growth of small to medium
sized businesses and companies which are not able to list on the
main market, the alternative market was created. The criteria to be
met are less onerous than the main market criteria though quality
and stability of the company are still seriously assessed.
Therefore, the issuer; must be a public company under the companies
Act, Cap 110, must submit a business plan with a clear indication
of its prospects, have published audited financial statement for at
least two years, and must comply with the detailed disclosure
requirements for AIMS as specified in Appendix 2 of the Listing
Rules
2.2.5 Listing requirements for FISMS
The issuer of fixed income security may be a company, a
government, a local government or any other body corporate. There
is a distinction in the listing rules between the procedure for the
listing of government bonds and the requirements for listing other
instruments on FISMS.
2.2.6 Procedure for listing government securities
The fiscal agent for the government is required to issue to the
exchange, a draft prospectus or letter of offer as stipulated in
the public finance and accountability act, 2003 and regulations
made there under, the Bank of Uganda is the fiscal agent of the
government. The draft prospectus must includes; the name of the
issuer, name or number of the issue, total amount of the issue and
the duration of the issue, among others
2.2.7 Cross Listing
This refers to the listing or intended listing of a security on
the USE which security is already listed on another stock exchange.
Cross listing is permitted on USE and the applicant must comply
with all MIMS requirements, and a letter of no objection from the
regulators.
2.2.8 Continuing listing requirements
While a company remains on the official list, it is required to
comply with the continuing listing requirements of the Uganda
Securities Exchange (USE) as provided in the Listing Rules. The
purpose of the continuing listing obligations is to ensure that the
requirements of full disclosure continue to be met while the
security is listed. In addition, the continuing obligations seek to
secure the confidence of and protect investors. The continuing
requirements are detailed in Appendix 4 of the Listing Rules
2.2.9 Costs of Listing
The Listing Rules make provision for various fees payable to
USE. The fees include initial listing fees which are payable when
an Issuer applies to list for the first time. Once the listing has
been approved, the issuer must pay annual listing fees. If the
Issuer wishes to issue more securities to the public, the Issuer is
required to pay additional listing fees. The fees are based on the
value of the securities sought to be listed in the case of initial
and additional listing fees. All fees are subject to a minimum and
maximum fee. The details of the fee structure are contained in
schedule 8 to the Listing Rules.
2.2.10 The Listing Process
In reality, listing is a process that takes some time to
accomplish. A prospective Issuer needs to plan for that time and
utilize the services of professionals. The Listing Rules require
that an issuer must appoint a sponsoring broker from amongst the
broker/dealer members of the exchange to advise the Issuer on the
listing requirements and see the listing through to its conclusion.
The sponsoring broker is responsible for the preparation and
submission of the prospectus information memorandum and all
accompanying documents.
In preparing the prospectus and related documents, the
sponsoring broker works with a team of professionals and usually
plays the role of co-coordinating the team. A
prospectus/information memorandum includes such information as the
Issuer’s history, management, business prospects, strategy,
pricing, financial information including accounts, land, other
properties, tax, risk factors, legal opinion, publicity and
marketing. The team includes auditors, lawyers, valuers, investment
bankers, reporting accountants and public relations firms,
basically professionals who have a role to play in the issue.
Once all the documentation is ready, the sponsoring broker
presents the application to list to USE in accordance with the
provisions of the listing rules. If the application is in order and
the requisite fee has been paid, USE approves the application to
list the Issuer and sets a date when the issue will commence
trading on the exchange.
2.3 SECURITIES EXCHANGE
Definition
A securities exchange is an entity which provides trading
facilities for stock brokers and traders to trade stocks and other
securities. The securities traded on a stock exchange include
shares issued by companies, unit trusts, derivatives, pooled
investment products and bonds, with the stock exchange often being
the most important component of a stock market. Wikipedia
Securities exchange originated as mutual organizations owned by
member brokers, there has been a recent trend for stock exchange to
demutualise, where the members sell their shares in an Initial
Public Offer (IPO). In this way, the mutual organization becomes a
corporation, with shares that are listed on the stock exchange such
as the Austrian securities exchange (1998). NASDAQ (2002).
In the 19th century, exchanges were opened to trade forward
contracts on commodities. Exchange traded forward contracts are
called future contracts. These commodities exchanges later started
offering future contracts on other products such as interest rates
and shares as well as options, now generally known as future
exchanges.
Securities markets have been a growing in sub Saharan Africa.
These securities exchange now exist in more than Sub Saharan
countries for example Botswana, Ghana, Kenya, Malawi, Mauritius,
Mozambique, Namibia, Nigeria, South Africa, Sudan, Swaziland,
Tanzania, Uganda, Zambia, and Zimbabwe. Cohn, R. (2000)
The growth has not ended. Plans are in place for new exchanges
such as Gambia. Most of the exchanges are of recent vintage with
the exception of exchanges in Kenya (1954), Nigeria (1960), and
much older exchanges in South Africa and Zimbabwe.
2.3.1 Role of Securities Exchanges
Stock exchanges have multiple roles in the economy, these
include; mobilizing savings for investment, raising capital for
business, facilitating company growth, corporate governance, profit
sharing, creating investment opportunities for all investors,
raising government capital for development of projects, barometer
of the economy.
Table 1; Broker dealers on the Uganda Securities Exchange
Name
Location
Baroda Capital Markets (U) Ltd
Kampala Road
Crane Financial Services (U) Ltd
Plot 20/30 Kampala
Equity Stock Brokers (U) Ltd
Orient Plaza Plot 6/6A Kampala
MBEA Brokerage Service (U) Ltd
Lumumba Avenue, Nakasero
Dyre & Blair (Uganda) Ltd
Rwenzori House Ground Floor
Africa Alliance (Uganda) Ltd
Workers House, 6th Floor
Renaissance Capital Ltd
Plot 3 Kololo Hill Lane
Crested Stocks and Securities Limited
6th Floor Impala House
UAP Financial service
1st Floor Communication
Source: www.use.or.ug
2.3.2 Trend of growth of Uganda Securities Exchange
In January 1998, a bell rang on one morning at the basement of
East African Development Bank (EADB) and the first securities
exchanged on the USE, it was the Uganda shillings Ten Billion Four
Years EADB Bond. The Five year Uganda shillings Eight point three
billion PTA Bond, was listed in 1999. USE’s first equity was Uganda
clays limited share floatation and was listed in 2000 with British
American Tobacco (BAT) Limited was on floatation the same year.
2001 saw the first cross boarder listing, East African Breweries
Limited (EABL). Kenya Airways (KA) was the second in 2002. Bank of
Baroda Uganda Limited (BOBU) was the first commercial bank to offer
its listings in2003 and it’s the same year that the USE share index
was launched. The first Government bond to be part of the USE list
was the two year, Uganda shillings twenty billion twenty percent
Coupon Rate Treasury bond in 2004.
There are 14 companies listed so far on the USE, these form the
Main Market Investment Segment, with quite a number willing and
showing interest to list but many of them fall off due to the
stringent listing requirements that affect them. There is however a
proposal for have medium scale enterprises to list. Its currently
found on the second floor of NSSF building (Worker’s House), trades
three days a week, (Monday, Tuesday, and Thursday) for two hours
each day, that is from 10:00am to 12:00pm. As from 7th March 2011,
trading will be five days a week, with the hours of trading
remaining the same. This has given thousands of Ugandans an
opportunity to benefit from profitable state enterprises and a
chance to invest their earnings in assets other than traditional
cash and land.
Trading, clearing and settlement were done manually, with
cheques and certificates issued. In 2010, USE launched a new online
system called the Securities Central Depository (SCD), which eased
the entire process. Transactions are under the Delivery Versus
Payment (DVP) system and this is confirmed through the New Business
Online (NBO), by Stanbic Bank which is the settling bank. Trading
is done by brokers on behalf of the buyer and the seller, on a
common floor and it’s done through the open outcry system and it’s
on first come first serve basis. Shares move on a T+5 for sellers
and a T+4 for buyers.
2.3.3 Functions of the USE
The basic function of the USE is to provide a facility for
raising funds for investment in long term assets. While this is
extremely important as the engine through which the stock exchange
is driven, there are other important functions of the USE, which
include; the creation of liquidity, the mobilization of savings,
price discovery, the growth of the related financial service sector
institutions like the insurance, pension and provident fund schemes
nurture the spirit of savings, improve of access to finance for new
and smaller companies, encourage of higher standards of
accountings, resource management and public disclosure,
facilitation of equity financing as opposed to debt financing,
divestiture of government owned companies. www.use.org.co
2.3.4 Benefits of getting listed on the USE
There is a wide range of benefits that can be obtained from
complying with the listing requirements and in the process of
acquiring more companies on the securities exchange, bring about
growth of the USE. These include; raising capital, employee
incentive, acquisition of findings, market evaluation, mergers,
improved debt equity ratio, loan capital issue opportunities,
liquid assets, and an avenue for investment. Getting listed on the
USE (2000).
2.4 RELATIONSHIP BETWEEN LISTING REQUIREMENTS AND THE GROWTH OF
UGANDA SECURITIES EXCHANGE
There are quite a number of companies willing and showing
interest to list on the Uganda Securities Exchange, but many of
them fall off due to the stringent listing requirements that affect
them. Therefore, the listings on the exchange are greatly affected
by listing requirements.
This is in line with Kigozi (2001) who explained that there is
currently increase in opportunities for local investors to access
financial resources through capital markets, however majority of
companies are still unable to meet the listing requirements.
The findings also concur with Rutega (2005) who stated that
listing requirements were simplified so as to enable broader
understanding as a mechanism of increasing listings.
2.5 CONCLUSION
Listing requirements create an avenue for the growth of the USE,
the growth is positive depending on how efficient they are,
otherwise they would hinder growth. Therefore, with evidence from
USE annual Reports, it’s evident that the USE has come up with
these rules to ensure that investors are protected and also enhance
their growth.
Much as Listing Rules have affected the growth of the USE, there
are several other factors that have affected the levels of growth
in terms of companies listed on the exchange. These factors include
less public awareness, illiteracy about; the existence of the USE
and its activities, the benefits of getting listed, listing
rules.
CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter highlights the procedure that was followed in
undertaking the study. It brings out the research design, the study
population, sample size, data sources and data collection methods,
data processing and analysis and finally the limitations of the
study.
3.2 Research Design
The research design was basically cross sectional. A combination
of descriptive and quantitative designs was used, so as to collect
as much data as possible about Listing Requirements and the growth
of Uganda Securities Exchange.
3.3 Study Population
The survey population comprised of Stock Brokers, Stock
Advisors, USE, CMA, and it’s from these that opinions about Listing
requirements and growth of USE were sought.
3.4 Sample Size
The researcher obtained data from forty respondents. The major
participants in the business are quite a number, so there was need
to choose a few manageable ones as summarized below.
Table 3. 1; Showing the sample size of the study
Position
Number of respondents
Stock Broker
24
Market Regulator
9
Stock Advisors
7
Total
40
Source; Primary Data
3.5 Sampling Design and Procedures
The researcher used both simple random sampling and purposive
sampling techniques. With simple random sampling, all the
participants in the study population had an equal chance of being
selected. And with purposive sampling, data was collected from key
informants about the subject matter.
3.6 Data Sources
3.6.1 Primary Data sources
This is first hand information that was freshly obtained from
the field using the research instrument for example the
questionnaire and interviews.
3.6.2 Secondary Data Sources
This is secondary information already published and it was
obtained from public libraries and university libraries. It was
sourced from books, journals, published bulletins, government
publications and the internet.
3.7 Data Collection Instruments3.7.1 Questionnaire
Data was collected using a questionnaire method. A comprehensive
questionnaire was designed basing on the research objectives and
questions. The questionnaires were closed ended which enabled the
respondents express their level of agreement on the Listing
Requirements and the Growth of USE.
3.7.2 Interview method
Informal interview techniques were used. The respondents were
stock brokers, stock agents, USE and CMA.
3.7.3 Observation Method
The researcher physically observed trading at the USE. This
helped the researcher obtain first hand information on trading of
securities.
3.8 Data Processing Analysis and Presentation3.8.1 Data
Processing
The data was subjected to processing for easy interpretation and
understanding. This involved coding, editing, and tabulation by
percentages and frequencies.
3.8.2 Data Analysis
After data processing, other statistical techniques of data
analysis were used, such as formal tables, and percentages to
determine, the relationship between Listing requirements and the
growth of USE. This was done with the help of MS Word and MS Excel
computer packages.
3.8.3 Data Presentation
After analyzing the data, the information gathered was then
presented in form of formal tables and percentages.
3.9 Limitations of the Study
In the course of the study, the researcher encountered the
following constraints;
1) There was limited adequate information especially the
relationship between Listing Requirements relationship and the
growth of the USE, since some information is confidential, so the
researcher had to go through the legal department to find this
information, which is a long process.
2) The research involved expenditures such as internet,
printing, the researcher therefore was once in a while challenged
financially, and always tried to look for alternative but cheaper
avenues for example find free hot spots, reviewing the work
thoroughly before printing to avoid printing work with
mistakes.
3) The response time especially for questionnaires could not
easily be told, so it was time consuming, the researcher therefore
sent out questionnaires early enough which gave respondents enough
time, the questionnaires were also easy to fill in through closed
ended questions.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.1 INTRODUCTION
This chapter focuses on the presentation, analysis, and
interpretation of major findings. The presentation is as
follows:
4.2 Background information4.2.1 Findings on the gender of
respondents.
Table 4. 1; Showing respondents’ gender
Sex
Frequency
%age
Cumulative %age
Male
27
67.5
67.5
Female
13
32.5
100
Total
40
100
Source: Primary Data
From Table 4.1 above, 67.5% of the respondents are male. This
therefore implies that most of the stock brokers, market regulators
and stock advisors are male. This is in line with what Maggie
Kigozi, chairperson Uganda Investment Authority said, “Most men in
Uganda easily take on risks, this is because they control the
finances in the home showing their superiority when it comes
investment.”
4.2.2 Findings on the age of respondents
Table 4. 2; Showing the age of the respondents
Age
Frequency
%age
Cumulative %age
Below 20 years
0
0
0
Between 21 and 35 years
33
82.5
82.5
Above 36 Years
7
17.5
100
Total
40
100
Source: Primary data
From Table 4.2 above, 82.5% of the respondents were between the
age of 21 and 35 years, this is a range of people who are
considered to be the most active in any economy and act as major
drivers of investment. The Uganda Bureau of Statistics released a
population report in 2010, showing over 60% of Ugandans are below
the age of 30, vibrant and account for most of the labour force in
the country.
4.2.3 Findings on the level of education of the respondents
Table 4. 3: Showing the Level of Education of the
respondents
Level of Education
Frequency
%age
Cumulative %age
Secondary
0
0
0
Diploma
3
7.5
7.5
Bachelors Degree
32
80
87.5
Masters Degree and Above
5
12.5
100
Total
40
100
Source: Primary data
From Table 4.3 above, 80% of the respondents were Bachelors
degree holders, meaning most of the respondents are learned hence
an indication that most of the trading attracts more educated youth
who are professionals. This means they can easily cope with the
technological changes, for example, in 2010 the USE launched a new
online system called the Securities Central Depository (SCD), which
requires knowledge and skills, which most of the respondents
possess and find less difficult to adapt.
4.2.4 Findings by Position held
Table 4. 4: Showing the Position held at the Uganda Securities
Exchange
Position held
Frequency
%age
Cumulative %age
Stock Broker
24
60
60
Market Regulator
9
22.5
82.5
Stock Advisors
7
17.5
100
Total
40
100
Source: Primary data
From Table 4.4 above, 60% of the respondents held the position
of stock broker. This implies that stock brokers dominate the
capital markets.
4.3 Findings on listing requirements4.3.1 Findings on efficient
listing requirements attracting more listings on the USE
Table 4. 5; Showing efficient listing requirements attracting
more listings on the USE
Efficient listing requirements would attract more listings on
the USE
Frequency
%age
Cumulative %age
Strongly disagree
2
5
5
Disagree
8
20
25
Not sure
3
7.5
32.5
Agree
25
62.5
95
Strongly agree
2
5
100
Total
40
100
Source: Primary data
From Table 4.5 above, 62.5% of the respondents agree that
efficient listing requirements would attract more listings on the
USE. The USE in its effort to enhance growth, has from time to time
reviewed its listing requirements to ensure efficiency. USE Annual,
Report (2008)
4.3.2 Findings on Lenient listing requirements being ideal for
the growth of the USE
Table 4. 6; Showing lenient listing requirements being ideal for
the growth of the USE
Lenient listing requirements are ideal for the growth of the
USE
Frequency
%age
Cumulative %age
Strongly disagree
4
10
10
Disagree
10
25
47.5
Not sure
3
7.5
55
Agree
15
37.5
80
Strongly agree
8
20
100
Total
40
100
Source: Primary data
From Table 4.6 above, 57.5% of the respondents agree that
lenient listing requirements are ideal for the growth of the USE.
This implies that lenient listing requirements attract more
listings on the securities market. The findings also concur with
Rutega (2005) who stated that listing requirements were simplified
so as to enable broader understanding as a mechanism of increasing
listings.
4.3.3 Findings on stringent listing requirements as the best
option to effect efficiency
Table 4. 7; Showing stringent listing requirements as the best
option to effect efficiency
Stringent listing requirements are the best option to effect
efficiency
Frequency
%age
Cumulative %age
Strongly disagree
6
15
15
Disagree
9
22.5
52.5
Not sure
2
5
57.5
Agree
15
37.5
80
Strongly agree
8
20
100
Total
40
100
Source: Primary data
From Table 4.7 above, 57.5% of the respondents agree that
stringent listing requirements are the best option to effect
efficiency. This implies that investors have confidence in the
stock market and are protected from less genuine, struggling
companies. According to Kato (2005), a company needs to fulfill its
listing requirements in order to be efficiently listed on the
securities exchange which boosts investor confidence that their
investments are safe and well protected. Again, the USE in its
effort to enhance growth, has from time to time reviewed its
listing requirements to ensure that the interests of the investing
public are protected. USE Annual, Report (2008)
4.4 Findings on the growth of Uganda Stock Exchange
4.4.1 Findings on the USE registering positive growth in terms
of listing since its inception in 1998
Table 4. 8; Showing the USE registering positive growth in terms
of listing since its inception in 1998
The USE has been registering positive growth in terms of listing
since its inception in 1998
Frequency
%age
Cumulative %age
Strongly disagree
0
0
0
Disagree
2
5
5
Not sure
6
15
20
Agree
22
55
75
Strongly agree
10
25
100
Total
40
100
Source: Primary data
From Table 4.8 above, 55% of the respondents agree that the USE
has been registering positive growth in terms of listing since its
inception in 1998. Njuuki (2009) agreed with these results when he
said, “the USE has over the past decade posted tremendous growth in
terms of listing, to date the USE boosts of nine equity listings,
six corporate bonds and thirty government bonds”
4.4.2 Findings on increase in public awareness increasing the
listings on the USE and thus enhance growth
Table 4. 9; Showing increase in public awareness increasing the
listings on the USE and thus enhance growth
Increase in public awareness would increase the listings on the
USE and thus enhance growth
Frequency
%age
Cumulative %age
Strongly disagree
0
0
0
Disagree
5
12.5
12.5
Not sure
0
0
12.5
Agree
15
37.5
50
Strongly agree
20
50
100
Total
40
100
Source: Primary data
From Table 4.9 above, 50% 0f the respondents strongly agree that
increase in public awareness would increase the listings on the USE
and hence enhance growth. This is in line with Cohn R (2000) who
stated that increased public interest and investor awareness
created the likelihood to increase market activity and stimulated
more companies to join their local exchanges.
4.4.3 Findings on increase in the number of listed companies as
an indicator of growth on the USE
Table 4. 10; Showing increase in the number of listed companies
as an indicator of growth on the USE
Increase in the number of listed companies is an indicator of
growth on the USE
Frequency
%age
Cumulative %age
Strongly disagree
0
0
0
Disagree
0
0
0
Not sure
2
5
5
Agree
19
47.5
52.5
Strongly agree
19
47.5
100
Total
40
100
Source: Primary data
From Table 4.10 above, 95% of the respondents agree and strongly
agree that increase in the number of listed companies is an
indicator of growth on the USE. “Increased activity on the exchange
increases the number of listings hence growth.” (2007) USE Annual
Report
4.4.4 Findings on number of listings as the ideal measure of
growth of the USE Table 4. 11; Showing number of listings as the
ideal measure of growth of the USE
Number of listings are the ideal measure of growth of the
USE
Frequency
%age
Cumulative %age
Strongly disagree
0
0
0
Disagree
8
20
20
Not sure
0
0
20
Agree
17
42.5
62.5
Strongly agree
15
37.5
100
Total
27
100
Source: Primary data
From Table 4.11 above, 42.5% of the respondents agree, while
37.5 strongly agree that the number of listings is the ideal
measure of growth on the USE.
Table 4.5.5; Showing the relationship between Listing
Requirements and the Growth of the Uganda Securities Exchange
Correlations
Listing Requirements
Growth of USE
Listing Requirements
Pearson Correlation
1
.821(**)
Sig. (2-tailed)
.000
N
40
40
Growth of USE
Pearson Correlation
.821(**)
1
Sig. (2-tailed)
.000
N
40
40
** Correlation is significant at the 0.01 level (2-tailed).
Table 4.5.5 above, shows a positive relationship between listing
requirements and the growth of USE at a level significant =0.01 by
Pearson correlation (r=0.821, p=0.000). This means that there is a
significant relationship between listing requirements and the
growth of USE and an improvement in listing requirements will
increase the number of companies listing on the USE.
CHAPTER FIVE
SUMMARY, CONCLUSIONS, RECOMMENDATIONS AND AREAS OF FURTHER
RESEARCH
5.0 INTRODUCTION
This chapter summarizes the study findings detailed in the
previous chapter, conclusions drawn made and suggestions on areas
of further study are also made
5.1 SUMMARY OF FINDINGS
5.1.1 Findings on listing requirements
From the findings, it was found out that for a company to get
listed, all listing requirements should be met. The requirements
should strike a balance between being lenient and stringent, in
other words, they should be efficient enough. This is in line with
the Nairobi Stock Exchange Annual Report (2001) which states that
listing rules define the regulatory environment for listed
companies and minimum requirements for listing as well as governing
the admission and management of members.
5.1.2 Findings on the growth of the USE
The study revealed that increase in the number of listings is an
indicator of growth of the USE which could be through increased
public awareness, and this growth may be positive in nature making
listing requirements an ideal measure of growth of the USE. This
was supported by majority of the respondents thus in line with Cohn
R (2000) who stated that increased public interest and investor
awareness created the likelihood to increase market activity and
stimulated more companies to join their local exchanges.
5.1.3 Findings on the relationship between listing requirements
and the growth of the USE
The findings indicated that listing requirements and the growth
of USE are positively related as it is indicated by r = 0.821
according to Pearson correlation coefficient as shown in table
4.5.5 in chapter four.
5.2 CONCLUSIONS5.2.1 Conclusions on listing requirements
The researcher discovered that listing requirements are
mandatory for any company to be listed on the Uganda Securities
Exchange.
5.2.2 Conclusions on the growth of the USE
In order to attract more investment, protect investors from bad
investment with stringent listing requirements while attracting new
companies with lenient listing requirements.
5.2.3 Conclusions on the relationship between listing
requirements and the growth of the USE
The researcher discovered that listing requirements positively
affects the growth of USE. The exchange needs to look at them in
order to see growth in terms of listings.
5.3 RECOMMENDATIONS
i. Since it has been shown that listing requirements are
mandatory for any company to get listed on the Uganda Securities
Exchange, efficient listing requirements should be maintained
through continued and regular amendment of the rules.
ii. In order to ensure continued growth of the USE, there should
be a balance between stringent and lenient listing requirements,
unlisted companies should be encouraged to list through increased
public awareness through print media, trainings, public lectures,
and annual reports accessible to the public sighting the benefits
of being listed.
5.4 AREAS OF FURTHER RESEARCH
While this research has examined how listing requirements have
an effect on growth of the Uganda Securities Exchange, further
research should be done on:
i. Increased public awareness and the number of listings on the
USE
ii. Company listings as a measure of the growth of the USE
iii. The growth of the USE in relation to other East African
Countries Securities Exchanges
REFERENCES
Barro, R.J (1991), “Economic growth in a cross section of
countries”. Quarterly journal of Economics, vol CV1: 407-443
Benning, M. (1998), “History and the objectives of the Uganda
Security Exchange,” The official journal of the Capital Markets
Authority, January/March issue, pg 12
Brealey, R.A and C Myers (1991), “Principles of cooperate
Finance” fourth edition. RRW business library
Buhsanzi, P. (2008), “Milestones, The journey of Uganda
Securities Exchange,” The Bourse USSE journal, pg 11
Cohn, S.R (2000) “Capital Market Development,” Document Series
13: UNITAR, Geneva.
Getting listed on the USE, (2000), “Why get listed?” How to get
listed
H.I.Alile, (1992), “Establishing a stock market,” The Nigerian
Experience.
Investor Glossary, (2010) “Definitions,” www.wikipedia.org,
(2011)
Juuko, S. (2008), “The Impact of Uganda Securities Exchange,”
The Bourse, USE journal, pg 20.
Kato, J. (2005) “The role and challenges of capital markets in
financing infrastructure in Africa,” Capital Markets journal, pg
8.
Kaye, S.(1998), “ The role of the securities exchange in
Uganda.” The official journal for the Capital Markets Authority,
Vol 1, No2, January/March issue, pg 25
Kitakule, G. (2007), “The Achilles heel of investors in East
Africa,” The Exchange, the official magazine of the East African
Securities Exchange, pg 6.
Listed companies on the Uganda Securities Exchange,
www.use.org.co.(2011)
Lutamaguzi, J.(2010), “The listing Requirements of the Uganda
Securities Exchange,” Security Central Depository, USE , Kampala,
Ugandan.
Mbabazi J (2003) Listing requirements and capital development in
Uganda,” The official journal of the capital markets Authority, Vol
1, No 2, January/March issue.
Mutebile, E. T (2008) “Forward by the Governor,” The Exchange,
The official magazine of the East African Securities Exchange,
Quarter 1 issue, pg 1.
NASDA Q (2002) “Origin of Stock Exchanges,” Quick Facts,
www.NASDA QOMX.com.
Njuuki, H.K (2009), “Market Performance,” The Bourse, Uganda
Securities Exchange journal, pg 111.
Obitre-Gama, J (2002), “Legal and Surveillance report,” Uganda
Securities Exchange Annual Report, pg 8.
Onegi Obeli, G (2005), “A leading role in the development of
capital markets in Uganda,” Capital Markets journal, pg 4-6
Panchapagessen, V (2003), “The challenges facing the US Stock
Markets,” Washington University press, St.Louis.
Rutega S (2008) “A word from the chair,” The Exchange, the
official magazine of the East African Securities Exchanges, pg
12-13.
Rutega S (2007), “The integration agenda of the Capital Markets
industry in East Africa,” The Exchange, the official magazine of
the East African Securities Exchanges, pg 4
Rutega S (2005) “A leading role in the development of Capital
Markets in Uganda,” Capital Markets journal, Pg 6
Samuels and Wikes. (1983), “Protecting the investor,” management
of company finance, third edition.
The Nairobi stock exchange (2001), “Listing rules and
regulations,” NSE Journal, pg 18
Uganda securities Exchange (2008), “Building the Securities
Exchange,” USE Annual Report.
APPENDICIESQUESTIONNAIRE
Dear respondent, thank you for taking time to fill in this
questionnaire. It is aimed at establishing the Relationship between
Listing Requirements and the Growth of Uganda Stock Exchange. I
promise that all the information received shall be treated
confidentially and shall be used for study purposes only. Thank you
again for your cooperation.
Under this section please tick the appropriate space
provided
Section A
1. Sex
a) Male
b) Female
2. Age
a) Below 20 years b) Between 21 and 35years C) 36 years and
above
3. Level of education
a) Secondary
c) Diploma
c) Bachelors Degree
d) Masters Degree and above
4. Position
a) Stock Broker b) Market Regulator c) Others Please
Specify……....
Under this section, please indicate your level of agreement with
the following
SD- Strongly Disagree, D- Disagree, NS- Not Sure, A- Agree, SA-
Strongly Agree
Section B
Listing requirements
SD
D
NS
A
SA
5.
Efficient listing requirements would attract more listings on
the USE
6.
Lenient listing requirements are ideal for the growth of the
USE
7.
Stringent listing requirements are the best option to effect
efficiency
Section C
Growth of Uganda Securities exchange
SD
D
NS
A
SA
8.
The USE has been registering positive growth in terms of listing
since its inception in 1998
9.
Increase in public awareness would increase the listings on the
USE and thus enhance growth
10.
Increase in the number of listed companies is an indicator of
growth on the USE
11.
Number of listings are the ideal measure of growth of the
USE
Section D
Listing requirements and the growth of the USE
SD
D
NS
A
SA
12.
Compliance with listing requirements guarantees growth of the
USE
13.
Listing requirements positively affect the growth of the USE
14.
Efficient listing requirements enhance the growth of the USE
15.
Growth of the USE can be attributed to the periodic review of
the listing requirements
RESEARCH PROJECT SCHEDULE
This is the time the researcher spent doing the research from
proposal write up, to data collection and analysis writing and
discussion and submission of the final report.
ACTIVITY
DURATION
Research proposal
1st March – 30th April
Data collection
1st April – 15th April
Data analysis
16th April – 30th April
Report writing
1st June – 20th June
Submission of the final report
30th June
PROJECT BUDGET
Activity
Amount in Uganda Shillings
Surfing for literature on the internet
20,000
Typing out the Research
20,000
Printing of the Research
40,000
Binding the Research
10,000
Transport Costs
20,000
Airtime
10,000
Miscellaneous Costs
30,000
Total
150,000
