[2008-07-14]  Uganda brokers, dealers plan boycott of the USE
A revolt is looming on the Uganda Stock Exchange (USE) as brokers and dealers express anger over a catalogue of grievances and which the bourse’s management is yet to respond to, 10 months after they were first raised.

A section of brokers said the Association of Uganda Stockbrokers and Dealers will meet this week to pass a vote to boycott trading if the USE management does not respond to their grievances.

At the heart of the matter is discontent over the application of rules on material information, suspension of brokerage firms from trading on the USE, bidding rules, interference by USE officials during trading sessions, settlement mechanisms, terms of notice for trading among individual stockbrokers and publication of company results.

The brokers also accuse the USE handling badly the suspension and expulsion of brokerage firms.

They said members did not receive any formal notification of such developments. Citing the recent suspension of Crane Financial Services (CFS) in April, the brokers claim the action was neither communicated through a notice on the information board of the trading floor nor to their association.

Neither was the same communicated through the press at the material time in order to alert the public against dealing with the censured broker. The brokers and dealers said they learnt of the suspension through informal channels.

This, some brokers feel, greatly undermined their association’s relevance and also risked loss of investment by the public. The association is of the view that it should always be notified of any suspension or expulsion of its member(s) by the USE in order to protect the public from potential fraud.

According to a May 16, letter written to the USE by the Association of Uganda Stockbrokers and Dealers , the latter point out several areas of dissatisfaction raised by its members which the USE’s management has not responded to.

The letter, seen by The EastAfrican, also reveals an earlier meeting that took place between the association and the stock exchange’s management on 12 September, 2007, over the same concerns yet no action had been taken by the beginning of this year.

The association cites its dissatisfaction with the application of USE regulations and makes recommendations proposing fundamental reforms in the management of the stock exchange.

The brokers contend that the manner in which the USE has been applying rules on material information and occasional interference by officials in activities on the floor, run counter to the principals of free trading and market competitiveness.

“This is not a free market. It is just a regulated market. We feel this is not fair to us and to the future of the stock market,” said one of the brokers.

Though the USE’s management applies the rule of material information during trading, the brokers’ association insists that it is neither part of the gazetted rules of procedure nor explicit enough for their members to easily understand.

Interpretation of this rule has been at the centre of previous misunderstandings between the USE and the stockbrokers’ umbrella body in the past, such as the closure of British American Tobacco Uganda (BATU)’s cigarettes plant in Jinja about three years ago, which the USE claimed was not material information because it had not received formal notification of the matter even after the same had been published in the press by the company.

According to the brokers, most listed companies usually publish information about major developments in their operations and financial results in the press, prior to informing the USE, which apparently undermines chances of the latter receiving relevant notification at the earliest possible opportunity.

In their letter, the brokers’ recommend that issues contained in the listing requirements should be considered material information so as to enable them competently assess company performance and advise clients effectively.

However, a source at the USE said that the bourse’s position was that material information only becomes material when a listed company writes to it formally explaining the relevance of the subject matter to its operations.

There are also concerns about the bidding and offering rules regime on the USE trading floor that are considered to be against competitive trading among stockbrokers because of unfair limits that create uneven performance between counters.

According to the association, the six spread opening bid which is equal to Ush30 ($0.02) is unfair because it applies to all counters, yet their stock prices are different. Overbidding is also not permitted.

In addition, bids that carry a margin of less than Ush30 (2 US cents) between each other are also not allowed.

Such a scenario has reportedly caused restlessness and embarrassment among stockbrokers who fail to secure shares for clients even when they are instructed to buy at the highest possible price due to failure to explain the tight trading rules to unsophisticated clients.

However, the association suggested that a given percentage across all counters or on the other hand, spreads based on a price range would help promote balanced performance and investor interest across all counters.

Undue interference by the USE in the course of trading is believed to be hampering fair trading on the floor through subjective calls on volume not warranting price movement and at times, tantamount to price manipulation, when based on the USE’s own subjective calls on valuation.

In addition, prevention of price movement where there is excess demand or supply over and above the six spreads but within the 15 per cent daily limit for increase in share price for all counters is deemed unfair by most brokers because it affects clients’ selling orders in cases where bargains are high.

The brokers association is proposing that the USE’s interpretation of rules should be documented, formalised and guidelines instituted when need arises. But trading time should also be compensated where necessary.



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