The Form and Scope of Self-Regulation under the Draft Capitals Markets Proclamation of Ethiopia
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Date
2020-12
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Addis Ababa University
Abstract
Recently, the Ethiopian government is poised to set-up the country’s first stock market by 2020 and as a result, a draft Capital Markets Establishment Proclamation has been approved by the Council of Ministers.1One of the vital building blocks of strong capital markets is effective regulation of participants. This research is a doctrinal and ex-ante research that tries to assess the scope and form of self-regulation under the draft proclamation. To achieve this objective, the analysis primarily depends on primary sources and uses secondary resources as a supplement. The assessment identified that the self-regulation under the draft proclamation takes the form of a mandatory co-regulation model whereby exchanges and SDCCs are recognized as SRO and other actors may be recognized and act as an SRO under government-supervision. Meanwhile, the scope of self-regulation is very much dependent on the delegation of power to be made by the Capital Markets Authority. Accordingly, the assessment found that self-regulation is relevant in the Ethiopian context and the identified form and scope of self-regulation under the draft proclamation has merits as it provides for the recognition of SROs. Further, it was found that the draft proclamation provides for various modalities to address the inherent risks pertaining to SROs. SROs’ lack the appropriate regulatory (including monitoring and enforcement) mandate under the draft proclamation to flexibly act and respond to market changes are notable limitations. Particularly, the subjective standard applied in delegation is open to arbitrary decision making on the part of the Authority and, in some instances, may expose the capital market to a potential of conflict of interest among the regulator (the Authority) and the regulated (when the government acts as a private actor).