A dispute has emerged between the Ethiopian Capital Market Authority (ECMA) and the Ethiopian Securities Exchange (ESX) over who determines shareholder rights for shares traded on the secondary market. The issue centers on who receives dividend payments, attends annual general meetings, votes, and contests board seats when shares change hands. The ESX has sought clarification from the ECMA, which has rejected the concern, arguing that existing laws and rules provide sufficient guidance.
The dispute has significant implications for shareholders, brokers, and issuers, who are seeking clarity on cutoff dates for shareholder rights. A new shareholder who bought Awash Bank shares after the bank listed on the ESX is struggling to find clear information on when he needs to buy shares to qualify for dividends. The ESX Rulebook is unclear, and brokers and industry contacts are unsure. The issue affects not only dividend payments but also voting rights and board seat contests.
The traditional practice of calculating dividend payments pro-rata based on the holding period of shares is no longer feasible in a modern stock market, according to Yodit Kassa, CEO of the ESX. The ESX has proposed two options to the ECMA: using June 30, the end of the financial year, as the cutoff date, or using the date when audited financial statements or dividend announcements are made public. The ESX believes that one of these options should be decided to provide clarity to investors.
The ECMA has rejected the ESX's proposals, arguing that existing rules and regulations provide sufficient guidance. According to Solomon Bekele, senior legal adviser at ECMA, the ESX Rulebook requires issuers to notify the ESX at least five business days before a board meeting that will consider dividends, bonus shares, or rights issues. The Rulebook also provides for price adjustments on ex-dividend dates. The Authority has shifted responsibility for administering shareholder rights back to issuers, the ESX, and the Central Securities Depository.
Financial experts are divided on the issue. Dakito Alemu, an associate professor at Addis Abeba University, opposes a uniform cutoff date, arguing that it should be the issuer's responsibility to determine the record date. He believes that a uniform date would not work, given that companies have different accounting years. On the other hand, Yisak Teka, a former National Bank of Ethiopia official, argues that the Authority should issue a directive to administer these matters consistently and prevent confusion.
The dispute highlights the need for clear regulations and guidelines in Ethiopia's capital market. The ESX has five listed companies, and the market is growing, with six banks and a state-owned telecom operator currently listed. The unlisted sector, comprising close to 25 banks and 17 insurance firms, is larger. The issue affects not only listed companies but also unlisted ones, and the rules should rest on a clearly established legal framework.
The Ethiopian capital market is still evolving, and the dispute between the ECMA and ESX highlights the challenges of establishing a functional and efficient market. The Authority and the Exchange must work together to provide clarity and consistency for investors, issuers, and brokers. The market continues to grow, with PrizeWorth Investment recently certified, and the resolution of this dispute will be crucial in ensuring the integrity and transparency of the market.
Key points
- The dispute centers on who determines shareholder rights for shares traded on the secondary market.
- The ESX has proposed two options for cutoff dates, while the ECMA argues that existing rules provide sufficient guidance.
- Financial experts are divided on the issue, with some arguing for a uniform cutoff date and others for issuer responsibility.
