Now that the Stock Exchange is waking up...
In a spate of two working days, the Ghana Stock Exchange (GSE) has suspended six companies from trading in a historic gesture that could signal a new level of sternness to indiscipline on the market.
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Panned for being docile in the lead-up to UT Bank’s collapse, the exchange’s decision to suspend African Champion Industry (ACI), Clydestone Ghana (CLYD), Golden Web (GWEB), Pioneer Kitchenware (PKL), Transaction Solutions (TRANSOL) and the Cocoa Processing Company (CPC) between August 28 and August 30 should be a wake-up call to listed companies that have long failed to comply with regulations needed to ensure their continuous existence on the market.
It should also herald a new beginning in capital market regulations and operations, which, if properly harnessed, could help spur growth in and respect for the capital market.
This is why. Although the reasons for the historic suspensions – failure to meet continuing listing obligations – are not new, it is the first time in the 28-year history of the GSE that six companies (Clydestone and Pioneer Kitchenware were later reinstated) have been suspended from trading in less than a week.
Much as the number matters less, the consistency and vigour with which it was done says much about an institution that has a critical role to play in the financial intermediation of our country.
As a burgeoning market with enormous potential for growth, one needs to understand that the GSE and the Securities and Exchange Commission (SEC) would have to command enormous respect for their own set of rules and regulations to help steer up and sustain confidence in the capital market.
How the two institutions will earn that respect depends, largely, on their individual posture to the enforcement of rules and regulations in the market.
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Trust is the word
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Globally, it is a known fact that the financial market, of which the capital market is a key part, thrives on confidence, which is borne out of trust, respect for and strict enforcement of credible and investor-friendly rules and regulations.
This explains why most investors and policymakers strongly regard listed companies and the information they churn out. Because of the strong rules and the strict enforcement that govern operations in the capital market, it is generally seen that not much of a listed company’s financials can be hidden for long without market participants fishing them out.
Although true, it only becomes a reality when institutions such as the GSE and the SEC are stern in ensuring that full disclosure to shareholders and market participants is not compromised.
This is because regular publication of financial results and happenings in the market serve as thermometers by shareholders and investors when it comes to measuring the soundness of the companies.
Ghana situation
Here in Ghana, however, there is no need belabouring the point that the GSE and the SEC have, in many occasions, coiled back when it comes to implementing and enforcing their own rules.
This is in spite of the fact that the two institutions are aware of their fiduciary responsibilities to shareholders and investors of listed companies and other market participants.
On lax enforcement, one thing that comes to mind quickly is the circumstances that heralded the taking over of selected assets and liabilities of the erstwhile UT Bank by the GCB Bank.
Although UT Bank had failed to comply with capital market regulations, including non-submission and disclosure of material information as required of listed companies, it was still allowed to trade on the exchange for the two years that it was not compliant, much to the amusement of many analysts.
Although some may try to explain this incident off as an exceptional case, given the sensitivity of banks, one needs to note that the nature of capital market operations requires that the regulator is not seen to be having different set of rules for each of the listed equities.
Beyond serving as motivation for other companies to also become complacent, allowing companies that are non-compliant to trade does not inspire the trust that is needed to sustain the market.
It also sends wrong signals to the international investor community, majority of whose interests are either acquired through the capital market or needed on the GSE to help boost it.
This explains why the GSE deserves a commendation for signaling, however, late, to shareholders and other stakeholders that it is now ready to bite.
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Impact on future listings
Although better than its counterparts in neighbouring countries, interest in the local capital market has been slow in spite of the series of strategies aimed at attracting more listings.
Since its debut in 1990, over 40 companies have undertaken initial public offers on the GSE, of which 37 are currently trading with others dropping along the line.
Market capitalisation, a measure of the value of all listed companies, has been hovering around GH¢58 billion while the two market indices, the Composite Index and the Financial Stocks Index, have ended most years on positive notes.
To help attract small and medium enterprises (SMEs) onto the capital market, a smaller market, the Ghana Alternative Market (GAX), was launched in 2013 and has since served a credible source of long-term funding to a sizeable number of businesses within its target group.
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Kudos, GSE
Beyond these, the coming onboard of other initiatives such as the Ghana Fixed Income Market and the Central Securities Depository tells of a country ready to harness the potentials of the capital market to support economic growth.
It also explains why the GSE and SEC need to continue to live up to expectations to help give the needed assurances to listed equities and prospective listings that the hassle of an IPO is worth it.
While strict enforcement of the rules could lead to a shrink in numbers through constant suspension and even delisting of some companies, it is instructive to note that a small, trusted and respected market is better than a bulky one that is not trusted by investors.
As said earlier, capital markets the world over, thrive on solid principles anchored on enforcement.
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Thus, if a company is not ready to abide by these principles, it is better not to motivate it onto the market than to bring it on-board for pampering. This erodes market confidence, motivates other companies to also slack and could even discourage prospective listings.
This requires that the GSE moves away from its posture of a consensus building approach into an enforcement one since that will help build and instil trust in the market.
For now though, let us commend the exchange for waking up to its fiduciary duty and altogether ensure, through constructive criticism, that it maintains the momentum that UT Bank’s failure created. – GB