The first securities exchange, where traders can buy and sell securities such as company stocks and bonds, will be established as a share company through a partnership of the public and private sectors, including foreign investors, according to the capital market bill that was tabled to the lawmakers at the end of last week to introduce a secondary market in Ethiopia for the first time.

The government's ownership of the share company, dubbed the Ethiopian Securities Exchange, will not exceed 25pc of the Exchange's capital, according to the bill. The Exchange will serve as a platform where capital market products such as equities, derivative instruments, financial and debt securities, and currency exchange contracts will be traded.

Once the Exchange is established, the matters of trading will be overseen and managed by a board of directors elected by shareholders. Any rule to be issued by the Exchange is subject to approval from the Capital Market Authority, which will be formed to regulate the primary and secondary markets.

However, the bill that was being drafted by the National Bank of Ethiopia (NBE) for over a year stated that the government could fully own the Exchange if there is no interest from the private sector. In a scenario where no interest is garnered, the Exchange will be established as a state-owned enterprise through a Council of Ministers' regulation.

The government's involvement in establishing the Exchange is to show its commitment and give confidence to the private sector, according to Melese Minale, senior macroeconomic advisor at the central bank and the Office of the Prime Minister.

Incepted during the Imperial era, the idea to establish a capital market failed to materialises when the Derguecame to power. The central bank has now drafted the bill to establish the Exchange as part of the government's major policy shift toward introducing a capital market. A capital market can be used as an alternative financial source for the government and private sector, especially when banks run into a crisis.

A technical committee comprised of members from the central bank, the Ministry of Finance, the Office of the Attorney General and consultants drafted the bill as part of the Homegrown Economic Reform Plan launched two years ago. Approved by the Council of Ministers a month ago, the bill proposes the capital market be kicked off with stocks and bonds in its first chapter.

Time to embark on transacting other financial derivatives will be determined by the Authority, according to Melese.

"The details will be outlined by a directive to be issued by the Authority," he said.

The bill proposes forming a Capital Market Authority, which will have seven board members named by the Prime Minister, to supervise the listing and delisting of securities. The Minister of Finance, the Governor of the central bank, Director of the Accounting & Auditing Board of Ethiopia, and three members with knowledge of the capital market will be the board members.