ORDINARY MARKET CONCEPT

What is a Market?

-Products sold

-Sellers

-Buyers

-Brokers

-Management

- lenders /Financiers

-Financial advisers

-Tax collectors

Problems:

-substandard goods

-Price problems like monopoly, overpricing, underpricing,

-dishonesty traders ……fake goods

Management is necessary hence some authority to regulate the market.

- Refresh on company laws

Definitions

Stated formally, financial markets provide channels for allocation of savings

to investment. These provide a variety of assets to savers as well as various forms
in which the investors can raise funds and thereby decouple the acts of saving and
investment. The financial markets have two major components; the money
market and the capital market.

A capital market is a financial market in which long-term debt (over a

year) or equity-backed securities are bought and sold. Capital markets
channel the wealth of savers to those who can put it to long-term productive
use, such as companies or governments making long-term investments.

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L

The Capital Market is a market for financial investments that are direct
or indirect claims to capital. It embraces all forms of lending and
borrowing, whether or not evidenced by the creation of a negotiable
financial instrument.

The Capital Market comprises the complex of institutions and

mechanisms through which intermediate term funds and long term
funds are pooled and made available to business, government and
individuals. The Capital Market also encompasses the process by which
securities already outstanding are transferred.

The financial markets have two major components; the money market and the
capital market.

Financial Markets

(a) Money Market

The money market refers to the market where borrowers and lenders
exchange short-term funds to solve their liquidity needs. Money market
instruments are generally financial claims that have low default risk,
maturities under one year and high marketability.

MONEY MARKET Vs. CAPITAL MARKET

The money market possesses different operational features as compared to capital

market. Money market is distinguished from capital market on the basis of the
maturity period, credit instruments and the institutions:

- Maturity Period:
The money market deals in the lending and borrowing of short-term finance
varying for one year or less, while the capital market deals in the lending
and borrowing of long-term finance for more than one year.

- Credit Instruments:
The main credit instruments of the money market are call money, treasury
bills, commercial bills, commercial papers, and bills of exchange. On the
other hand, the main instruments used in the capital market are stocks,
shares, debentures, bonds, corporate deposits etc.
- Institutions:
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 Important institutions operating in the money market are central banks,
commercial banks, acceptance houses, non banking financial
institutions, bill brokers, etc. Important institutions of the capital market are
stock exchanges, commercial banks and non banking institutions, such
as insurance companies, mortgage banks, etc.
- Purpose of Loan:
The money market meets the short-term credit needs of business; it
provides working capital to the industrialists. The capital market, on the
other hand, caters the long-term credit needs of the industrialists and
provides fixed capital to buy land, machinery, etc.

-Risk and Liquidity:

The degree of risk is small and that of liquidity is higher in the money
market as compared to the higher risk and lower liquidity in the capital
market.

-Role of Central Bank:

The central bank closely and directly has impact on the money market and its
participants by framing its regulations and deciding various rates of
interests that has impact on the parameters of an economy, while in case of
capital market central bank has an indirect link through other regulators like
DSE.

Market Regulation: In the money market, commercial banks are closely

regulated. In the capital market, the institutions are not much regulated.

(b) Capital Market

The Capital Market is a market for financial investments that are direct or indirect
claims to capital. It is wider than the Securities Market and embraces all forms
of lending and borrowing, whether or not evidenced by the creation of a
negotiable financial instrument. The Capital Market comprises the complex of
institutions and mechanisms through which intermediate term funds and long term
funds are pooled and made available to business, government and individuals. The
Capital Market also encompasses the process by which securities already
outstanding are transferred.

The Securities Market

The Securities Market, refers to the markets for those financial
instruments/claims/obligations that are commonly and readily transferable by sale.

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The Securities Market has two inter-dependent and inseparable segments, the
new issues (primary) market and the stock (secondary) market.

Importance of having Capital Markets

Capital market plays an extremely important role in promoting and sustaining the
growth of an economy.
–It is an important and efficient conduit to channel and mobilize funds to enterprises,
both private and government.
–It provides an effective source of investment in the economy.
–It plays a critical role in mobilizing savings for investment in productive assets, with
a view to enhancing a country’s long-term growth prospects, and thus acts as a
major catalyst in transforming the economy into a more efficient, innovative and
competitive marketplace within the global arena.
–In addition to resource allocation, capital markets also provide a medium for risk
management by allowing the diversification of risk in the economy.
–A well-functioning capital market tends to improve information quality as it plays a
major role in encouraging the adoption of stronger corporate governance principles,
thus supporting a trading environment, which is founded on integrity.
–Capital market has played a crucial role in supporting periods of technological
progress and economic development throughout history.
–Among other things, liquid markets make it possible to obtain financing for capital-
intensive projects with long gestation periods. This certainly held true during the
industrial revolution in the 18th century and continues to apply even as we move
towards the so-called “New Economy”.
–Capital markets make it possible for companies to give shares to their employees
via ESOPs.
–Capital markets provide a currency for acquisitions via share swaps.
– Capital markets provide an excellent route for disinvestments to take place.
–Venture Capital and Private Equity funds investing in unlisted companies get an
exit option when the company gets listed on the capital markets
–The existence of deep and broad capital market is absolutely crucial in spurring the
growth our country.

The functions of Capital Markets

Major objectives of capital market are:

–To mobilize resources for investments.
–To facilitate buying and selling of securities.
–To facilitate the process of efficient price discovery

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 - raising capital,
- trading,
- and investment,

Financial products (Capital markets products)

Savings are linked to investments by a variety of intermediaries through a range of
complex financial products called “securities” which include shares, scrips, stocks,
bonds, debentures, debenture stock, or other marketable securities of like
nature in or of any incorporate company or body corporate, government
securities, derivatives of securities, units of collective investment scheme,
security receipts, interest and rights in securities, or any other instruments so
declared by the central government.

Types of Capital Markets

The main markets

 Financial assets
 Money market
 Bond market
 Equity market
 Foreign exchange market
 Options markets
 Alternative investments
 Financial information

Functions of the CMSA

Functions, duties and powers of the CMSA are subject to the provisions of
the Section 10 (1) of the CMS Act; the CMSA has the duty to:-

 Promote and develop efficient and sustainable capital markets and

securities business in Tanzania while ensuring fair and equitable
dealings;
 Formulate principles for the guidance of the industry, protection of
investors' interests and integrity of the securities market against any
abuses;

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  Licensing and regulating stock exchanges, dealers, brokers and their
representatives and investment advisors;
 Advising the Government on policies and all matters relating to the
securities industry.
 Create the necessary environment for the orderly growth and
development of the capital market;

Relevant Laws/ Regulatory Framework

A) -STATUTES

The legal framework governing the entry into the business, conduct and operations of
capital markets in Tanzania is built on a three-tier structure.

(i) The Capital Markets and Securities Act, 1994, 1. Capital

Markets And Securities Act [PRINCIPAL LEGISLATION] Acts Nos.5 of 1994

2. Capital Markets and Securities (Amendments) Act, 2010.

3. Commodity Exchanges Act, 2015(Cap.79) (as amended) This is the basic law
which regulates the conduct of business in capital markets. The enforcement organ is
the Capital Markets and Securities Authority (CMSA).

(ii) The Companies Act, 2002 (Cap.212).

This law regulates a wide range of corporate issues including; the formation of private
as well as public companies and all matters relating to issuance of securities, rights of
shareholders, prospectuses’ contents, obligations of directors and governance issues.
The enforcement agency is the Registrar of companies.

B) CAPITAL MARKETS' REGULATIONS

Regulations and Rules made by CMSA and DSE. The understanding

that the Capital Markets are sufficiently complex and the speed of changes within the
industry is so fast that the ability of the Parliament to cope with it through statutory
enactments is limited; made the Parliament find it prudent to delegate Regulations and
Rules making powers on specific issues to CMSA and DSE respectively.

1.The Capital Markets and Securities (Licencing) Regulations 1996

2.The Capital Markets and Securities (Registers of Interests in

Securities) Regulations 1996

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3.Capital Markets and Securities (Establishment of Stock Exchange)
Regulations 1996

4.The Capital Markets and Securities (Financial and Accounting

Requirements) Regulations 1997

5.The Capital Markets and Securities (Advertisements) Regulations

1997

6.The Capital Markets and Securities (Collective Investment

Schemes) Regulations 1997

7.Capital Markets and Securities (Prospectus Requirements)

Regulations 1997

8.The Capital Market and Securities (Conduct of Business)

Regulations 1997

9.The Capital Markets and Securities (Capitalization and Rights

Issue) Regulations 2000

10.The Capital Markets and Securities (Foreign Investors

Amendments) Regulations 2014

11.Capital Markets and Securities (Foreign Companies Public Offers

Eligibility and Cross Listing Requirements) Regulations 2003

12.Capital Markets and Securities (Custodian of Securities)

Regulations 2006

13.Capital Markets and Securities (Substantial Acquisitions,

Takeovers and Mergers) Regulations 2006

14.Capital Markets and Securities Authority (Nominated Advisors)

Regulations, 2008

15.Capital Markets and Securities Authority (Collective Investment

Schemes) (Real Estate Investment Trusts) Rules, 2011

16.Capital Markets and Securities Authority (Foreign Companies

Public Offers Eligibility and Cross Listing Requirments) Amendment,
2005

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17. DSE Rules (as approved by CMSA), 2014.

C) GUIDELINES

1. Guidelines for the Issuance of Corporate Bonds and Commercial

Paper, 1999

2. Capital Markets and Securities (Corporate Governance)

Guidelines, 2002

FINANCIAL PRODUCTS/INSTRUMENTS

Section 2 of the THE CAPITAL MARKETS AND SECURITIES ACT

defines: "securities" include–

(a) debentures, stock, shares, bonds, or notes issued or proposed to be

issued by a body corporate and any right, warrant or option in
respect thereof; (b) bonds or other loan instrument of the
Government of Tanzania or of any other country; (c) rights or
interests, whether described as units or otherwise under any collective
investment scheme; (d) such other rights, interests or instruments
as the Minister may, by notice in the Gazette prescribe.

 Capital Market Instruments:

Equity, Debentures, Preference Shares, Sweat Equity, Non-Voting Shares,
Share Warrants  Pure, Hybrid and Derivatives

Money Market Instruments:

Treasury Bills, Commercial Bills, Commercial Paper, Factoring Agreements &
Discounting of Bill

- CORPORATE BOND

A Corporate Bond is a bond issued by company/ an enterprise “A

borrower” to investors “Lenders” from the general public. When a

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company issues a bond it divides it into small proportions that are sold at a
price called the face value. The Company will promise investors payment of
some interests on the borrowed amount; interests will be paid annually
or semiannually. Investors are also promised repayment of the borrowed
amount after the bond matures.

- GOVERNMENT BOND

A Government Bond is a bond issued by the Government “The Borrower” to

the investors “The Lenders” who are from the general public. When the
Government issues a bond it divides that bond into smaller proportions that
are sold at a price called the face value. The Government promises
investors payment of some interests on the borrowed amount; interests are
paid annually or semiannually. Investors are also promised repayment of the
borrowed amount after the bond matures. Currently the Government
issues bonds that mature after a period of 2, 5, 7, 10 and 15 years,
these bonds yield interest rates of 7.82%, 9.18%, 10.08%, 11.44% and
13.5% respectfully.

- DERIVATIVE
A derivative is a financial instrument whole value depends on an
underlying asset. Derivatives help to alleviate risk exposures of the
underlying assets by structuring contractual agreements to buy or sell
underlying assets in a future date at a pre-determined price. The
main types of derivative are Futures and Options. Futures are contracts
(agreements) to buy or sell another asset at a future date for the
price agreed upon today. Options are contracts that give the holder the
right to buy or sell another asset at or before a future date for the
price agreed upon today.

- FUTURES
Futures is a contract between two parties to buy or sell a underlying asset of
standardized quantity and quality for a price agreed upon today with
delivery and payment occurring at a specified future date. Underlying
assets for the purpose include equities, foreign exchange, interest
bearing securities and commodities. The idea behind financial futures
contract is to transfer future changes in security prices from one
party in the contract to the other. It offers a means to manage risk
in participating financial market. Futures basically transfer value
rather than create it. It is a means for reducing risk or assuming risk in
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the hope of profit. Every futures contract entered into has two side willing
buyer and a willing seller. If one side of contract makes a profit, the
other side must make a loss. All futures market participants taken
together can neither lose nor gain the futures market is a zero sum
game.

-OPTIONS
An option contract conveys the right, but not the obligation, to buy or
sell a specific security or commodity at specified price within a
specified period of time. The right to buy is referred to as a call option
whereas the right to sell is known as a put option. An option contract
comprises of its type a put or call, underlying security or commodity expiry
date, strike price at which it may be exercised.

- CORPORATE BONDS AND COMMERCIAL PAPER

Corporate bonds and commercial paper are instruments issued for the
purpose of raising funds directly from investors without
intermediation by banks or other financial institutions.

This is for working capital requirements in the case of commercial paper

and for long term financing requirements in the case of corporate
bonds. The time horizon of the financial instruments determines whether
it is a corporate bond or commercial paper.

(A) BOND

A bond is a debt instrument with a maturity of one year or more, and

evidence of a loan extended by a creditor to a corporation or other borrower
such as a government or local authority. The borrower is obligated to pay
the bondholder a specific interest at specific intervals, and to repay the
principal amount of the loan at maturity. Bonds signify indebtedness of the
issuer to the bondholder but do not have corporate ownership privileges as
shareholders.

- GUARANTEED BOND

Means a bond which is guaranteed as to payment of interest and repayment

of principal by a third party who may or may not be related to the issuer
but is usually larger, better known or more credit worthy than the issuer, or
guaranteed by means of a contract of insurance.
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(B) COMMERCIAL PAPER

Commercial paper is a debt instrument with a maturity of less than one year
and is evidence of loan extended by a creditor to a corporation.

- GUARANTEED PAPER

Means a commercial paper which is guaranteed as to payment of interest

and repayment of principal by a third party who may or may not be related
to the issuer but is usually larger, better known or more credit worthy than
the issuer or guaranteed by means of a contract of insurance.

- SHARE

"Share" means the interest of members of a body corporate who are

entitled to share in the capital or income of such body corporate. (S 2 CMSA
1994)

Paid-up Share Capital

This represents ordinary shares (equity shares), which have been issued and
fully paid for, but excludes all non-equity shares except for non-redeemable
preference shares.

Equity capital and further issues of equity capital by a company are

generally based on the condition that they will rank pari passu along
with the earlier issued share capital in all respects. However, as
regards dividend declared by the company such additional capital shall be
entitled to dividend ratably for the period commencing from the date of issue
to the last day of the accounting year, unless otherwise specified in the
articles or in the terms of the issue.

Important characteristics of equity shares are given below:

(i) Equity shares, have voting rights at all general meetings of the
company. These votes have the affect of the controlling the management of
the company.

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(ii) Equity shares have the right to share the profits of the company
in the form of dividend (cash) and bonus shares. However even equity
shareholders cannot demand declaration of dividend by the company which
is left to the discretion of the Board of Directors.

(iii) When the company is wound up, payment towards the equity share
capital will be made to the respective shareholders only after payment of
the claims of all the creditors and the preference share capital.

Preference share capital

That part of the issued share capital of the company which carries or would
carry a preferential right with respect to – (a) payment of dividend, either
as a fixed amount or an amount calculated at a fixed rate, which may either
be free of or subject to income-tax; and (b) repayment, in the case of
a winding up or repayment of capital, of the amount of the share capital
paid up or deemed to have been paid-up, whether or not, there is a
preferential right to the payment of any fixed premium or premium on any
fixed scale, specified in the memorandum or articles of the company.

The following kinds of preference shares are issued by the companies:

• Cumulative preference shares

The dividend payable every year becomes a first claim while

declaring dividend by the company. In case the company does not
have adequate profit or for some reason the company does not want
to pay preference dividend, it gets accumulated for being paid
subsequently. Such arrears of preference dividend will be carried forward
and paid out of the profits of the subsequent years, before payment of
equity dividend. However, if a company goes into the liquidation no
arrears of preference dividend will be payable unless the Articles of
Association of the issuing company contains a specific provision to make
such payment even in winding up.

• Non-cumulative preference shares

Dividend does not accumulate. If there are no profits or the profits are
inadequate in any year, the shares are not entitled to any dividend for that
year. They are entitled to payment of the declared preference dividend in
any particular year and to the repayment of their preference capital in
the event of winding up before payment to the equity shareholders.

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• Convertible preference shares

The terms of issue of preference shares includes a right for converting

them into equity shares at the end of a specified period they are called
convertible preference share

• Redeemable preference shares

Are redeemed after specific period and money is returned to shareholders.

• Participating preference shares

Generally, all preference shareholders are not entitled to dividend more than
what has been indicated as part of the terms of issue, even in a year in
which the company has made huge profits. Subject to provision in the terms
of issue Participating preference shares can be entitled to participate
in the surplus profits left, after payment of dividend to the
preference and the equity shareholders to the extent provided therein

• Non participating preference shares.

Unless the terms of issue indicate specifically otherwise, all preference

shares are to be regarded as nonparticipating preference shares.

- DEBENTURE

Debenture is a document evidencing a debt or acknowledging it and any

document which fulfills either of these conditions is a debenture.

The important features of a debenture are:

1. It is issued by a company as a certificate of indebtedness.

2. It usually indicates the date of redemption and also provides for the
repayment of principal and payment of interest at specified date or
dates.

3. It usually creates a charge on the undertaking or the assets of the

company. In such a case the lenders of money to the company enjoy better
protection as secured creditors, i.e. if the company does not pay interest
or repay principal amount, the lenders may either directly or through the
debenture trustees bring action against the company to realise their dues by
sale of the assets/undertaking earmarked as security for the debt.

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4. Debentures holders do not have any voting rights.

5. Compulsory payment of interest. The interest on debenture is payable

irrespective of whether there are profits made or not.

Types:

(a) Naked or unsecured debentures

Debentures of this kind do not carry any charge on the assets of the
company. The holders of such debentures do not therefore have the right to
attach particular property by way of security as to repayment of principal or
interest.

(b) Secured debentures

Debentures that are secured by a mortgage of the whole or part of the

assets of the company are called Secured debentures. . In case of default
debenture trustee has the rights to sell the securities and pay the amount to
holders.

(c) Redeemable debentures

Debentures that are redeemable on expiry of certain period are called

redeemable debentures

(d) Perpetual debentures.

If the debentures are issued subject to redemption on the happening

of specified events which may not happen for an indefinite period,
e.g. winding up, they are called perpetual debentures.

(e) Bearer debentures

Such debentures are payable to bearer and are transferable by mere

delivery. The name of the debenture holder is not registered in the
books of the company, but the holder is entitled to claim interest and

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principal as and when due. A bonafide transferee for value is not affected
by the defect in the title of the transferor.

(f) Registered debentures

Such debentures are payable to the registered holders whose name

appears on the debenture certificate/letter of allotment and is
registered on the companies register of debenture holders
maintained.

CONVERTIBILITY OF DEBENTURES

Based on convertibility, debentures can be classified under three

categories:

1. Fully Convertible Debentures (FCDs)

These are converted into equity shares of the company with or

without premium as per the terms of the issue, on the expiry of
specified period or periods.

2. Non Convertible Debentures (NCDs)

These debentures do not carry the option of conversion into equity shares
and are therefore redeemed on the expiry of the specified period or periods.

3. Partly Convertible Debentures (PCDs)

These may consist of two kinds namely -convertible and non-convertible.

The convertible portion is to be converted into equity shares at the
expiry of specified period. However, the non convertible portion is
redeemed at the expiry of the stipulated period.

- UNIT

"Unit" in relation to a unit trust, means a right or interest, whether

described as a unit, sub-unit or otherwise which may be acquired
under the trust; (s.2 CMSA)

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and “unit trust scheme" means any arrangement made for the purpose, or
having the effect, of providing facilities for the participation by persons as
beneficiaries under a trust, in profits or income arising from the acquisition,
holding, management or disposal of securities or any other property.

-CALL MONEY CALL/NOTICE MONEY is an amount borrowed or lent on

demand for a very short period. If the period is more than one day and up to
14 days it is called ‘Notice money’ otherwise the amount is known as Call
money. No collateral security is required to cover these transactions. The call
market enables the banks and institutions to even out their day to day
deficits and surpluses of money. Commercial banks, Co-operative Banks and
primary dealers are allowed to borrow and lend in this market for adjusting
their cash reserve requirements.

- TREASURY BILLS

Treasury Bills In the short term, the lowest risk category instruments
are the treasury bills. Reserve Bank of India issues these at a prefixed dbt
and a fixed amount. These include 91-day T-bills, 182-Day T-bills, and 364-
day T-bills. The usual investors in these instruments are banks who invest
not only to part their short-term surpluses. These T-bills, which are
issued at a discount, can be traded in the market. The transaction cost
on T-bills is nonexistent and trading is considerably high in each bill,
immediately after its issue and immediately before its redemption.

- CERTIFICATES OF DEPOSITS (CDS) After treasury bills, the next lowest

risk category investment option is the certificate of deposit (CD) issued by
banks and Financial Institutions. CDs are issued by banks and FIs mainly
to augment funds by attracting deposits from corporates, high net
worth individuals, trusts, etc. The foreign and private banks, especially,
which do not have large branch networks and hence lower deposit base use
this instrument to raise funds.

- COMMERCIAL PAPERS (CP)

CPs are negotiable short-term unsecured promissory notes with

fixed maturities, issued by well rated companies generally sold on
discount basis. Companies can issue CPs either directly to the investors or
through banks / merchant banks (called dealers). These are basically
instruments evidencing the liability of the issuer to pay the holder in
due course a fixed amount i.e.face value of the instrument, on the
specified due date. These are issued for a fixed period of time at a
discount to the face value and mature at par.
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-INTER-CORPORATE DEPOSITS

Apart from CPs, corporates have access to another market called the inter
corporate deposits (ICD) market. An ICD is an unsecured loan extended
by one corporate to another. This market allows funds surplus
corporates to lend to other corporates. As the cost of funds for a
corporate is much higher than a bank, the rates in this market remain higher
than those in the other markets.

-COMMERCIAL BILLS

Bills of exchange are negotiable instruments drawn by the seller of the

goods on the buyer of the goods for the value of the goods delivered. These
bills are called trade bills. These trade bills are called commercial bills when
they are accepted by commercial banks.

THE SECURITIES MARKET INTERMEDIARIES/KEY PLAYERS

The securities market has essentially three categories of participants,

namely (i) the issuers of securities, (ii) investors in securities and (iii)
the intermediaries.

The issuers and investors are the consumers of services rendered by the
intermediaries while the investors are consumers of securities issued by
issuers. Those who receive funds in exchange for securities and those who
receive securities in exchange for funds often need the reassurance that it is
safe to do so. This reassurance is provided by the law and custom, often
enforced by the regulator. The regulator develops fair market practices and
regulates the conduct of issuers of securities and the intermediaries so as to
protect the interests of investors in securities. The regulator ensures a high
standard of service from intermediaries and supply of quality securities and
non-manipulated demand for them in the market.

The role of intermediaries makes the market vibrant, and to function

smoothly and continuously. Intermediaries possess professional expertise
and play a promotional role in organising a perfect match between the
supply and demand for capital in the market. All those, institutions or
individuals, who help to bring the savers and seekers of capital and
enable a regular flow of funds from supply to demand points are
intermediaries. All intermediaries are service providers and are an
integral part of the Securities Market. These market intermediaries
provide different types of financial services to the investors. They are
constantly operating in the financial market. It is in their (market
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intermediaries) own interest to behave rationally, maintain integrity and to
protect and maintain reputation, otherwise the investors would not be
trusting them next time. In principle, these intermediaries bring efficiency to
corporate fund raising by developing expertise in pricing new issues and
marketing them to the investors.

The following market intermediaries are involved in the Securities Market:

 Merchant Bankers

‘Merchant Banker’ means any person engaged in the business of issue

management by making arrangements regarding selling buying or
subscribing to securities or acting as manager/consultant/advisor or
rendering corporate advisory services in relation to such issue
management. Merchant Bankers are rendering diverse services and
functions. These include organising and extending finance for investment
in projects, assistance in financial management, raising loans and issue
of foreign currency bonds.

 Registrars and Share Transfer Agents

‘Registrar to an Issue’ means the person appointed by a body corporate or

any person or group of persons to carry on the following activities on its or
his or their behalf i.e.: (i) collecting application for investor in respect of an
issue; (ii) keeping a proper record of applications and monies received from
investors or paid to the seller of the securities; (iii) (a) assisting body
corporate or person or group of persons in determining the basis of
allotment of the securities in consultation with the stock exchange; (b)
finalising the list of person entitled to allotment of securities; (c) processing
and despatchment of allotment letters, refund orders or certificates and
other related documents in respect of the issue;

 Underwriters

Underwriter means a person who engages in the business of underwriting of

an issue of securities of a body corporate. Underwriting is an arrangement
whereby certain parties assure the issuing company to take up shares,
debentures or other securities to a specified extent in case the public
subscription does not amount to the expected levels. For this purpose, an
arrangement (agreement) will be entered into between the issuing company
and the assuring party such as a financial institution, banks, merchant
banker, broker or other person. Underwriting is compulsory for a public
issue. It is necessary for a public company which invites public subscription
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for its securities to ensure that its issue is fully subscribed. The company
cannot depend on its advertisements to bring in the full subscription. In case
of any short-fall, it has to be made good by underwriting arrangements
made in advance of the opening of the public issue. It is the underwriter who
agrees to take up securities which are not fully subscribed in a public issue.
The underwriter makes a commitment to get the issue subscribing either by
others or by themselves.

 Bankers to issue

Bankers to the issue, as the name suggests, carries out all the activities of
ensuring that the funds are collected and transferred to the Escrow
accounts. The Banks render crucial service in mobilisation of capital for
companies. While one or more banks may function as Bankers to the Issue
as well as collection banks, others may do the limited work of collecting the
applications for securities along with the remittance in their numerous
branches in different centres. The banks are expected to furnish prompt
information and records to the company and to the lead manager for
monitoring and progressing the issue work.

 Debenture Trustees

‘Debenture Trustee’ means a trustee of a trust deed for securing any issue of
debentures of a body corporate. Intermediaries such as Trustees who are
generally Banks and Financial Institutions render this service to the investors
for a fee payable by the company. Role and Functions include: – Call for
periodical reports from the body corporate, i.e., issuer of debentures. – Take
possession of trust property in accordance with the provisions of the trust
deed. – Enforce security in the interest of the debenture holders. – Ensure
on a continuous basis that the property charged to the debenture is
available and adequate at all times to discharge the interest and
principal amount payable

 Portfolio managers

Portfolio manager means any person who pursuant to contract or

arrangement with the client, advises or directs or undertakes on behalf of
the client the management or administration of a portfolio of securities or
the funds of the clients as the case may be. A portfolio manager plays a
pivotal role in deciding the best investment plan for an individual as
per his income, age as well as ability to undertake risks. A portfolio
manager is responsible for making an individual aware of the various
investment tools available in the market and benefits associated
*19
with each plan. Make an individual realize why he actually needs to
invest and which plan would be the best for him. A portfolio manager is
responsible for designing customized investment solutions for the clients
according to their financial needs.

 Stock-brokers and sub-brokers

Stock-broker means a member of stock exchange and they are the

intermediaries who are allowed to trade in securities on the exchange of
which they are members. They buy and sell on their own behalf as well
as on behalf of their clients. A sub-broker is one who works along with
the main broker and is not directly registered with the stock exchange as a
member. Sub-broker means any person not being a member of stock
exchange who acts on behalf of a stock broker as an agent or
otherwise for assisting the investors in buying, selling or dealing in
securities through such stock brokers. A stock broker plays a very
important role in the secondary market helping both the seller and the buyer
of the securities to enter into a transaction. The buyer and seller may be
either a broker or a client.

 Custodians

A custodian is a person who carries on the business of providing custodial

services to the client. The custodian keeps the custody of the securities
of the client. The custodian also provides incidental services such as
maintaining the accounts of securities of the client, collecting the
benefits or rights accruing to the client in respect of securities. Every
custodian should have adequate facilities, sufficient capital and financial
strength to manage the custodial services.

 Investment Advisers

“Investment Adviser” means any person, who for consideration, is

engaged in the business of providing investment advice to clients or
other persons or group of persons and includes any person who holds out
himself as an investment adviser, by whatever name called. Investment
advisers are those, who guide one about his or her financial dealings
and investments. The role of investment adviser has got a lot of
significance in the present time. Investment adviser serve as facilitators,
making sure that all clients have many opportunities to express their
financial concerns and issues. Basically Investment adviser give advice
and provide services related to the investment management process.
The rapid change of market conditions as well as the availability of
*20
numerous options for financial investments necessitates the existence of
knowledgeable investment adviser. In order to add value, the investment
adviser is called upon to apply specialized knowledge, experience and
analytical resources to create and deliver focused advice to client
and works to increase the investment knowledge of clients and
thereby support the fiduciary obligations clients face in the management of
their plan.

 Credit Rating Agencies

Credit ratings establish a link between risk and return. They thus provide a
yardstick against which to measure the risk inherent in any
instrument. An investor uses the ratings to assess the risk level and
compares the offered rate of return with his expected rate of return (for the
particular level of risk) to optimise his risk-return trade-off. Credit ratings
provide individual and institutional investors with information that
assists them in determining whether issuers of debt obligations
and fixed-income securities will be able to meet their obligations
with respect to those securities. Credit rating agencies provide investors
with objective analyses and independent assessments of companies that
issue such securities.

THE DAR ES SALAAM STOCK EXCHANGE (DSE)

Originally the DSE was a body corporate incorporated in 1996 under the
Companies Act, 2002 as company limited by guarantee without share
capital, but as of 29th June, 2015 it became a public company limited by
shares. The organogram of the DSE is spelt out under the Articles of
Association of the DSE. The DSE governance structure is built on three
pillars. The apex pillar is the General Meeting of the shareholders of
the company. This forum is the final organ in the governance ladder within
the DSE.

The second pillar (below the General Meeting) is the Board of

Directors which is duly appointed in accordance with the Articles of
Association of the DSE. All the governing functions of the DSE are vested
into the Board. The Board is accountable to the General Meeting.

The third pillar is Management of the DSE under the leadership of

the Chief Executive Officer. Management, which is composed of the CEO

*21
and Managers, is vested with powers to run the day to day activities of the
DSE. Management is answerable to the Board of Directors.

DSE MEMBERSHIP

The DSE membership consists of Licenced Dealing Members (LDMs) and

Associate Members.

LDMs are classified according to the activities or transactions they are

licensed to perform.

1.-The LDMs that are allowed to transact at the DSE as agents or on

behalf of the investors are known as brokers.

2.- LDMs who are allowed to transact as Principals or on their own

behalf are known as Dealers.

3.- Associate members are all non-LDM members (natural and legal) who
have interest in the development of capital markets in Tanzania including
the following categories; Listed companies, Custodian Banks, Institutional
investors, professional associations, as well as individuals.

DSE FUNCTIONS

(i) Provides a market for listed securities DSE provides a

platform that enables those wishing to join listed companies to do so and
those wishing to leave to do so as well. The DSE therefore provides platform
and liquidity by way of providing a continuous market for securities whereby
securities are exchanged for cash.

(ii) Facilitates transparency Disclosure requirements put in place by the

DSE require listed companies to promptly disclose all price sensitive
information so that investors may make informed decisions. This is achieved
at two levels; first, at the initial offering period when companies have to
meet listing requirements relating to offering documents and second through
continuous listing obligations. In this context, the DSE becomes information
clearing point between listed companies and investors (information hub).

(iii) Facilitates privatization and wider ownership of resources

The DSE facilitates the privatizations of the some parastatal organizations
which were hitherto under the control of the Government whose shares have
been sold by the Government to the public through the DSE.

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(iv) Facilitates raising of capital for enterprises The DSE
facilitates companies to sell new shares/bonds at better prices which lower
the cost of capital to such companies and improves their chances of
increasing operating profits. Experience has shown that investors accept
higher prices for shares and lower interest rates for bonds, when companies
selling these securities are well known and have met listing conditions and
reporting requirements as opposed to lesser known enterprises where the
investors are faced with a greater amount of uncertainty and as a result they
demand lower prices for shares or higher yields as a compensation for this
increased risk.

(v) Creation of wealth through investing in listed

securities Listed companies provide an opportunity for many people in
the society to participate through ownership in key sectors of the economy.
This opportunity enhances a broad- based wealth creation and economic
empowerment to many citizens.

(vi) Contributes to the cultural transformation of Tanzanians

At the time the DSE was established, only a handful Tanzanians could claim
to be knowledgeable with stock market operations. Operationalization of the
DSE has contributed substantially towards public enlightenment which has
caused more Tanzanians to invest in listed companies as a result of this
transformation. The public enlightenment exercise is ongoing and will keep
on while taking into account past experiences. It is the DSE’s goal that
Tanzanians appreciate and eventually adopts a thrift culture that thrives on
equity ownership in successful business concerns.

INVESTING AT THE DAR ES SALAAM STOCK EXCHANGE

PLC

Both foreigners and Tanzanians are allowed to invest on the listed securities
at the DSE. Anyone interested in investing on either equity or bonds must
contact DSE Licensed Dealing Members. Also investors can buy and sell
shares though their mobile phones simply by dialing *150*36# (Vodacom,
Tigo & Airtel) for quotation, later will receive a message prompt to pay either
by Mpesa, Tigo Pesa, Airtel Money or Maxmalipo. Within 3 days the
respective broker that you have chosen will contact you.

*23
MARKET MALPRACTICES (PART IX OF THE ACT-TRADING IN
SECURITIES )

106. False trading and market rigging transactions.

106. False trading and market rigging transactions

(1) Any person who creates or causes to be created, or does anything that is
calculated to create, a false or misleading appearance of active trading
in any securities on a stock exchange in Tanzania or a false or
misleading appearance with respect to the market for, or the price
of, any such securities commits an offence. (2) Any person who by
means of purchases or sales of any securities that do not involve a change in
the beneficial ownership of those securities, or by any fictitious
transactions or devices, maintains, inflates, depresses, or causes
fluctuations in the market price of any securities commits an
offence. (3) Without prejudice to the general effect of subsection (1), any
person who– (a) effects, takes part in, is concerned in or carries out, either
directly or indirectly, any transaction of sale or purchase of any securities,
being a transaction that does not involve any change in the beneficial
ownership of the securities; (b) makes or causes to be made an offer to sell
or purchase any securities at a specified price where he has made or caused
to be made or proposes to make, or knows that person associated with him
has made or caused to be made or proposes to make, an offer to sell or
purchase the same number, or substantially the same number of securities
at a price that is substantially the same as the specified price, shall be
deemed to have created a false or misleading appearance of active
trading in securities on a stock exchange.

(4) In the prosecution of a person for an act referred to in subsection (3), it

is a defence if the defendant establishes that the purpose for which he did
the act was not, or did not include, the purpose of creating a false or
misleading appearance of active trading in securities on the stock exchange.
(5) A purchase or sale of securities does not involve a change in the
beneficial ownership for the purposes of this section if a person who
had an interest in the securities before the purchase or sale, or a
person associated with such person, acquires an interest in the
securities after the purchase or sale.

*24
 (6) In a prosecution for an offence under subsection (2) in relation to a
purchase or sale of securities that did not involve a change in the beneficial
ownership of those securities, it is a defence if the defendant establishes
that the purpose for which he purchased or sold the securities was not, or
did not include, the purpose of creating a false or misleading appearance
with respect to the market for, or the price of, securities. (7) The
reference in subsection (3) to a transaction of sale or purchase of securities
includes– (a) a reference to the making of an offer to sell or purchase
securities; and (b) a reference to the making of an invitation, however
expressed that expressly or impliedly invites a person to offer to sell or
purchase securities.

107. Stock market manipulation.

107. Stock market manipulation (1) Any person who effects, takes part in,
is concerned in or carries out, either directly or indirectly two or more
transactions in securities of a body corporate which transactions
have, or are likely to have, the effect of raising, lowering,
maintaining or stabilising the price of securities of the body
corporate on a stock exchange in Tanzania with intent to induce
other persons to sell, purchase or subscribe for securities of the
body corporate or of a related body corporate shall be guilty of an
offence. (2) A reference in this section to a transaction, in relation to
securities of a body corporate, includes– (a) a reference to the making of an
offer to sell or purchase such securities of the body corporate; and (b) a
reference to the making of an invitation, however expressed, that expressly
or impliedly invites a person to offer to sell or purchase securities of the
body corporate

108. False or misleading statements.

108. False or misleading statements.

Any person who makes a statement, or disseminates information, that is

false or misleading in a material particular that is likely to induce the sale
or purchase of securities by other persons or is likely to have the

*25
effect of raising, lowering, maintaining or stabilising the market
price of securities if, when he makes or disseminates the information–

(a) does not care whether the statement or information is true or

false; or (b) he does or ought reasonably to have known that the
statement or information is false or misleading in a material
particular, commits an offence.

109. Fraudulently inducing persons to deal in securities.

109. Fraudulently inducing persons to deal in securities (1) Any person

who– (a) by making or publishing any statement, promise or forecast
which he knows to be misleading, false or deceptive; (b) by any
dishonest concealment of material facts; (c) by the reckless making
or publishing, dishonestly or otherwise, of any statement, promise
or forecast that is misleading, false or deceptive; or (d) by recording
or storing in, or by means of, any mechanical, electronic or other
device, which information he knows to be false or misleading in a
material particular, induces or attempts to induce another person to
deal insecurities is guilty of an offence. (2) It is a defence to a
prosecution for an offence under subsection (1) (d) to establish that,
at the time when the defendant so recorded or stored the
information, he had no reasonable grounds for expecting that the
information would be available to any other person

110. Dissemination of information about illegal transactions.

110. Dissemination of information about illegal transactions Any person who

circulates, disseminates or is concerned in the circulation or dissemination
of, any statement or information to the effect that the price of any
securities of a body corporate will or is likely to rise or fall or be maintained
by reason of any transaction entered into or other act or thing done in
relation to securities of that body corporate, or of a body corporate that is

*26
related to that body corporate, in contravention of any of the provisions in
this Part is guilty of an offence where– (a) the person, or a person
associated with the person, has entered into any such transaction or done
any such act or thing; or (b) the person has received, or expects to receive
directly of indirectly, any consideration or benefit for circulating or
disseminating, or authorising or being concerned in the circulation or
dissemination of the statement or information,

111. Employment of manipulative and deceptive devices.

111. Employment of manipulative and deceptive devices

It is unlawful for any person directly or indirectly in connection with the

purchase or sale of any securities– (a) to employ any device, scheme or
artifice to defraud; (b) to engage in any act, practice or course of
business which operates or would operate as fraud or deceit upon
any person; or (c) to make any untrue statement of a material fact or to
omit to state a material fact necessary, with the result that the statements
made in the light of the circumstances under which they were made, appear
truthful.

112. Prohibition of dealings in securities by insiders.

112. Prohibition of dealings in securities by insiders

(1) A person who is, or has at any time in the preceding six months prior to
a specific deal been connected with a body corporate shall not deal in
any securities of that body corporate if by reason of his association,
he is in possession of information that is not generally available but,
if it were, might materially affect the price of those securities. (2) A
person who is, or has at any time in the preceding six months prior to a
specified deal been connected with a body corporate shall not deal in any
securities of another body corporate if by reason of his being; or having
been connected with the firstmentioned body corporate he is in possession
of information that–

(a) is not generally available but, if it were, would be likely to affect

materially the price of those securities; and (b) relates to any transaction
(actual or expected) involving both those bodies corporate or involving one
*27
of them and the securities of the other. (3) Where a person is in possession
of any information as provided in subsection (1) or (2), but he is not
precluded by either of those subsections from dealing in those securities, he
shall not deal in those securities if– (a) he has obtained the information,
directly, from another person and is aware, or ought reasonably to be
aware, of the facts of circumstances by virtue of which that other persons is
himself precluded by subsection (1) or (2) from dealing in those securities;
or (b) when the information was so obtained, he was associated with that
other person or had with him an arrangement for the communication of
information of a kind to which those subsections apply with a view to dealing
in securities by himself or with that other person. (4) No person shall at any
time when he is precluded by subsection (1), (2) or (3) of this section from
dealing in any securities– (a) cause or procure any other person to deal in
those securities; or (b) communicate that information to any other person
if– (i) trading in those securities is permitted on a stock exchange whether
within or outside Tanzania; and (ii) he knows, or ought reasonably to
know, that the other person will make use of the information for the purpose
of dealing or causing or procuring another person to deal in those securities.
(5) Without prejudice to subsection (3) but subject to subsection (7) and
(8), no body corporate shall deal in any securities at a time when any officer
of the body corporate is precluded by subsection (1), (2) or (3) from dealing
in those securities. (6) A body corporate is not precluded by subsection (6)
from entering into a transaction at any time by reason only of information in
the possession of an officer of that body corporate if– (a) the decision to
enter into the transaction was taken on its behalf by a person other than
that officer; (b) it had in operation at that time arrangements to ensure that
the information was not communicated to any person and that no advice
with respect to the transaction was given to him by a person in possession of
the information; or (c) the information was not so communicated and such
advice was not so given. (7) A body corporate is not precluded by
subsection (6) from dealing in securities of another body corporate by
reason only of information in possession of its officer which was obtained by
the officer in the course of his duties as its officer but relates to proposed
dealings by the first- mentioned body corporate in securities of the other
body corporate. (8) For the purposes of this section, a person is
connected with a body corporate if, being a natural person– (a) he
is an officer of that body corporate or of a related body corporate;

*28
(b) he is a substantial shareholder in that body corporate or in a
related body corporate; or (c) he occupies a position that may
reasonably be expected to give him access to information of a kind
to which subsection (1) and (2) apply by virtue of– (i) any
professional or business relationship existing between himself (or
his employer or body corporate of which he is an officer) and that
body

corporate or a related body corporate; or (ii) his being an officer or a

substantial shareholder in that body corporate or in related body corporate.
(9) This section does not preclude the holder of a dealer's licence from
dealing in securities, or rights or interests in securities, of a body corporate,
where the securities, rights or interests are permitted by a stock exchange
to be traded on the stock market of that stock exchange, if– (a) the holder
of the licence enters into the transaction concerned as agent for another
person in accordance with a specific instruction to effect that transaction;
(b) the holder if the licence has not given any advice to the other person in
relation to dealing in securities, or rights or interests in securities, of that
body corporate that are included in the same class as the first-mentioned
securities; and (c) the other person is not associated with the holder of the
licence. (10) Where a prosecution is instituted against a person for entering
into a transaction whilst in possession of certain information contrary to this
section, it is a defence if the person satisfies the court that the other party
to the transaction knew, or ought reasonably to have known, of the
information before entering into the transaction. (11) For the purposes of
subsection (8), "officer", in relation to a body corporate, includes– (a) a
director, secretary, executive officer or employee of the body corporate; (b)
a receiver, or receiver and manager, of property of the body corporate; (c)
an official manager or a deputy official manager of the body corporate; (d)
a liquidator of the body corporate; and (e) a trustee or other person
administering a compromise or arrangement made between the body
corporate and another person
*29
NB

Public Issue of shares means the selling or marketing of shares for subscription by the
public by issue of prospectus. For raising capital from the public by the issue of shares,
a public company has to comply with the provisions of the Companies Act etc. A
company can raise funds from the primary market through different method.

(a) Public issue: When an issue/offer of securities is made to new investors for
becoming part of shareholders’ family of the issuer it is called a public issue. Public
issue can be further classified into Initial public offer (IPO) and Further public offer
(FPO). The significant features of each type of public issue are illustrated below:

(i) Initial public offer (IPO):

When an unlisted company makes either a fresh issue of securities or offers its existing
securities for sale or both for the first time to the public, it is called an IPO. This paves
way for listing and trading of the issuer’s securities in the Stock Exchanges.

(ii) Further public offer (FPO) or Follow on offer: When an already listed company
makes either a fresh issue of securities to the public or an offer for sale to the public, it
is called a FPO.

(b) Right issue (RI): When an issue of securities is made by an issuer to its
shareholders existing as on a particular date fixed by the issuer (i.e. record date), it is
called a rights issue. The rights are offered in a particular ratio to the number of
securities held as on the record date.

(c) Bonus issue: When an issuer makes an issue of securities to its existing
shareholders as on a record date, without any consideration from them, it is called a
bonus issue. The shares are issued out of the Company’s free reserve or share
premium account in a particular ratio to the number of securities held on a record date.

*30