The recently established Ethiopian Capital Market Authority (CMA) announces that those who want to raise funds from the public through primary or secondary markets should get approval from the regulatory body before going through with public announcements. The Authority underscores that it has a mandate to follow up and regulate any type of share floating with very little exceptions.
During a press conference held Wednesday June 21, the Ministry of Trade and Regional Integration (MoTRI) and CMA disclosed that those who offer share sales should need to have a clear prospectus and green light from the regulatory bodies with no vague announcements on their advertisement.
In accordance to this, the Ministry and Authority have cited that the cases are now under investigation in connection to the share sales.
Teshale Belhu, State Minister of MoTRI, said that his Ministry is investigating some suspicious incidents regarding public share floats.
“Following the amendment of the Commercial Code, which was revised after six decades, MoTRI has drafted detailed directives to regulate share companies in a harmonized manner,” Teshale highlighted, adding, “The directives will be effective in the near future but until that transpires, the general public should be vigilant on those who are offering shares.”
“The issue was one of the challenging areas in the economy to which the Ministry will now strongly supervise accordingly,” he said, elaborating that the Ministry will also work in collaboration with the newly formed Authority to ensure that the public is free from any harm of the illegal actors.
CMA on the other hand stated that as per the proclamation for the formation of the regulatory body, it has a mandate to regulate any share sales.
“Except for the few that are aligned to individuals or associated with families and relatives, the Authority has a mandate to overlook the activity regarding share sales,” Brook Taye, Director General of CMA explained.
As per sub article 4.D of article 75 of the CMA proclamation, securities offered in private placement are not necessary in applying for registration at the Authority for share sales.
Article 75.5 of the CMA proclamation stated that privately issued securities shall not be publicly traded.
He said that as per article 75 of the CMA establishment proclamation, the Authority has a mandate to regulate companies which are offering shares to the public.
“As per the proclamation, be it primary or secondary markets, it will be governed by the Authority,” Brook the founding head of CMA explained.
Article 75.1stated that a publicly traded security shall be registered, prior to the offer or placement, by the Authority; while, the third point stated that the Authority shall determine, by directive, the information required for registration statements.
According to Brook, anyone who wants to sale shares needs to have received permission from CMA, “Those who want to offer shares to the public have to submit their prospectuses that should be approved for share sales or fund raising.”
Article 76.1 of the proclamation indicated that an issuer of securities shall obtain approval from the Authority for its prospectus prior to issuing or advertising any securities for a public offering and sub article two added that the prospectus under Sub-Article (1) of the article shall be accurate, sufficiently clear, comprehensive and reasonably specific and timely.
“Notwithstanding Sub-Article (2) of this Article, the Authority may issue specific requirements of the prospectus, including advertisement of public offerings, in a directive,” sub article three follows.
Article 76.4 stated that the Authority may refuse the prospectus for any of the following reasons: a) the prospectus is not in accordance with the provisions of the Commercial Code, this Proclamation, or any other requirements to be issued in a directive by the Authority; or b) the prospectus contains any inaccurate or incomplete statement that may influence the decision of the subscriber.
The same article sub article 5 also included that the issuer shall make the prospectus available to the public free of charge, in the terms and conditions as determined in a directive by the Authority.
As Brook explains, some companies are approaching the Authority to get the approval for fund raising, but so far the regulatory body is yet to issue approvals.
“We are responsible to regulate the sector but further directives are under process to be issued by both the Ministry and the Authority,” he added. He advised the public to crosscheck before making a decision on the attractive promotions to raise fund.
Regarding legal measures, article 106.16 of CMA proclamation stated that whoever, directly or indirectly, makes, circulates or publishes a prospectus that he knows is false, with intent to induce other persons, whether ascertained or not, to purchase a security, or deceive or defraud the shareholders or creditors shall be punishable with a fine of no less than Birr 200,000 and no more than Birr 350,000, and a rigorous imprisonment of no less than 7 years and no more than 15 years.
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