GSE seeks self-regulatory status for commercial paper market


The Ghana Stock Exchange (GSE) is actively pursuing self-regulatory status from the Securities and Exchange Commission (SEC), in a bid to simplify the regulatory framework for the commercial paper (CP) market and bolster investor confidence.

The move comes as GSE prepares to launch the CP market later this year, aiming to align its regulations with those of global markets and create a transparent and competitive environment for issuers and investors.

During an industry engagement event named ‘Developing a commercial paper market in Ghana’, Abena Amoah, GSE-Managing Director, emphasised the significance of seeking self-regulatory status by stating: “What Ghana is looking at is very much in line with other markets in terms of how the CP market is going to be regulated. That is why we are asking the SEC to grant self-regulatory status to the GSE so that the GFIM oversees this market”.

Under the proposed self-regulatory status, GSE through the Ghana Fixed Income Market (GFIM) will assume oversight and regulatory control over the CP market. This streamlined process will enable GSE to approve issuances on the CP market as well as the secondary listing and trading of CP securities without requiring SEC approval, unlike corporate bond issuances.

Enhancing transparency and fostering confidence among investors are the primary objectives of obtaining self-regulatory status. Currently, pension funds holding substantial assets under management (AUM) are hesitant to invest in commercial papers due to the lack of visibility and transparency in pricing. By bringing the CP market under supervision of the GFIM, it is anticipated that more pension funds will be encouraged to invest – thus boosting overall market growth.

“What we are doing is meant to give investors confidence to come onto the market. Most pension funds cannot invest in commercial papers because they are not listed, and there is very little visibility on the price of these securities. But when we organise and bring the market under supervision of the GFIM, it means that some of the GH¢50billion in AUM held by the pension funds will be placed on the CP market,” the MD emphasised.

Commercial papers play a vital role in providing short-term financing for businesses and institutions. Ms. Amoah highlighted: “Companies that need short-term funding to meet working capital requirements but find it difficult to qualify for traditional bank loans can benefit from this organised commercial paper market”.

To ensure investor confidence, CP issuers will be required to meet certain qualifications and provide comprehensive documentation beyond a one-page letter. This documentation should include information about the company’s directors, potential risks and details about actions in case of default. The regulated environment will provide a reliable platform for issuers and investors, offering clarity between short-term and long-term financing options.

In addition to boosting investor confidence, obtaining self-regulatory status for the GSE will streamline the approval process for CP issuances; making it more efficient for companies to access short-term funding. The GFIM’s oversight will create a transparent and competitive market environment, facilitating secondary market trading of CP securities.

“We are aiming to create a system similar to other global markets, where rating agencies assess credit risks and provide valuable information to the market. This will contribute to growth of the commercial paper market, which currently stands at a trillion dollars globally,” Ms. Amoah elaborated.

Commenting on the CP market, Stanbic Bank Ghana’s Head of Investment Banking, Kobby Bentsi-Enchil, stressed the benefits of a well-established CP market for both borrowers and investors.

“It offers investors alternative options, allowing for diversification away from government exposure and T-bill investments. Moreover, banks and well-run corporations will have the opportunity to raise short-term liabilities in this market; thus presenting investors with attractive direct investment opportunities,” he said.

“The timing for developing a robust CP market seems ideal, given recent events and the growing need for alternative investment avenues,” he added.

With appropriate regulations and proactive education about existing opportunities, Mr. Bentsi-Enchil believes that Ghana’s financial growth can receive a significant boost through a well-functioning CP market.

Regarding liquidity, Mr. Bentsi-Enchil highlighted that all commercial papers will be listed on the exchange, providing investors with a means to get their money back quickly. This listing and ease of trading will enhance liquidity for the listed instruments, making it a favourable avenue for companies seeking short-term financing. For long-term funding needs, the bond market remains a more appropriate option.

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