SEM at a glance
The Stock Exchange of Mauritius Ltd (SEM) was incorporated in Mauritius on March 30, 1989 under the Stock Exchange Act 1988, as a private limited company responsible for the operation and promotion of an efficient and regulated securities market in Mauritius. Since 06 October, 2008, SEM became a public company. Since 1989, the Stock Exchange of Mauritius has come a long way. From the teetering steps of the early days when trading took place once a week for a mere 5 minutes through the open-outcry system, when the settlement cycle of a transaction exceeded two weeks, and when the total value traded during the first six months of operations barely exceeded Rs 15 million, the SEM has today emerged as one of the leading exchanges in Africa and has been at the forefront of the change process in the exchange space on the continent. Back in 1989, the SEM started its operations with the Official Market only with five listed companies atthat time and a market capitalisation of nearly USD 92 million. The size of the market has grown from a market capitalisation to GDP ratio of less than 4% in 1989 to a current market Cap/GDP ratio exceeding 75%, in an economy that has witnessed a 5% average growth rate during the last 25 years.
The Stock Exchange of Mauritius operates two markets today: the Official Market, the Development & Enterprise Market (DEM). Currently, there are 51 companies listed on the Official Market representing a market capitalisation of nearly US$ 9.2 billion as at 30 December 2016. The DEM has been launched on 4 August 2006 and there are presently 43 companies listed on this market with a market capitalisation of nearly US$ 1.3 billion as at 30 December 2016. SEM can list, trade and settle equity and debt products in USD, EUR, GBP, ZAR besides the local currency MUR. Local investors account for about 60 % of the daily trading activities, and foreign investors account for the 40 % remaining. 75 % of that local volume is generated by institutions like mutual funds, pension funds and insurance companies.
11 investment dealers operate on the Mauritius Bourse. Each investment dealer holds a license granted by the Financial Services Commission. Investment dealers are required to have at least one duly licensed representative who shall be entitled to carry out the functions of the Investment dealer. SEM also has in place rules for remote membership, with a view to encouraging membership from foreign brokers and foreign participants to our market. This reinforces the attractiveness of SEM as a listing and capital-raising platform for African and emerging markets issuers.
The stock market was opened to foreign investors following the lifting of exchange control in 1994. Foreign investors do not need approval to trade shares, except for the holding of more than 15% in a sugar company. Foreign investors benefit from numerous incentives such as revenue on sale of shares can be freely repatriated and there are no withholding tax on dividends and no tax on capital gains. Foreign investors have, over the years, emerged as key players on the SEM and currently account for about 40 % of the daily trading volumes on the Exchange. Given the growing interest that frontier markets like Mauritius are attracting from international investors in search of investment opportunities in high growth economies, we expect further increases of foreign investment inflows on the SEM in the coming years.
SEM’s quarter century of history is one where the exchange has constantly strived to break new grounds to overcome the structural constraints of an island economy where the universe of products, investors and market participants is relatively restricted. Over time, the Stock Exchange of Mauritius acted as a powerful value-creation platform for listed companies and has played an important role in the democratisation process of the Mauritius economy by enabling a large number of retail investors to participate in the growth story of a number of listed companies. SEM has transformed itself into a multi-asset class international securities Exchange over the years and is well poised to embrace the future with renewed optimism.
The successful implementation of the Central Depository System (CDS) in January 1997 has brought about prompt, efficient clearing and settlement of trades and at the same time reduced some of the inherent risks in the process. With the support of the Bank of Mauritius which acts as clearing bank, CDS ensures delivery versus payment (DVP) on a T+3 rolling basis. The CDS also provides for a Guarantee Fund Mechanism to guarantee settlement failures of participants. There has never been a failed trade on the Stock Exchange of Mauritius.
SEM is the first Exchange in Africa to move to a fully automated and electronic stock market infrastructure since June 2001, which operates on one of the best technology currently available in the Exchange space worldwide. This technology has been implemented by the London Stock Exchange and the Johannesburg Stock Exchange over the last two years. This shows the SEM’s foresight in adopting a technological platform that is well set to become the most used platform in the Exchange business at the international level. An investor can follow our market on a real time basis and seize investment opportunities on a real time basis through our web-based technology.
Similarly, the trading of treasury bills on the market has been introduced by the SEM in December 2003, a first step of a process aimed at the setting up of an active secondary market for government instruments. Likewise, SEM has been working closely with the Central Bank and Commercial Banks to set up a platform to trade medium and longterm government securities on the Exchange. The operational framework of this market has been already finalized. Commercial Banks which have been licensed as Primary Dealers by the Central Bank will act as Market Makers on the SEM platform to ensure liquidity. This initiative will contribute to the creation of a yield curve and act as a lynchpin to the creation of an active secondary Bond market for private issuers.
Since 2005, SEM is a full-fledged member of the World Federation of Exchanges (WFE), a central reference point and standards setter for exchanges and the securities industry in the world. In March 2010, the SEM was also designated by the Cayman Islands Monetary Authority (CIMA), an Approved Stock Exchange. The CIMA recognition undoubtedly raises the profile of the SEM as a well-structured and properly regulated Exchange and enhances SEM’s position as an attractive Listing venue for global and specialised funds. With effect from 31 January 2011, SEM has also been designated by the United Kingdom’s Her Majesty’s Revenue and Customs (HMRC), as a “recognised Stock Exchange”, as a result of which, securities traded and listed on the Official Market of the SEM meet the HMRC interpretation of “listed” as set out in section 1005 (3) (a) and (3) (b) Income Tax Act 2007. SEM is also regarded as a ‘recognised Stock Exchange’ for Inheritance Tax purposes. This designation confers several potential benefits for SEM. In the first place, UK pension schemes will be permitted to hold securities listed on the Official Market of the SEM, giving companies and funds listed on SEM access to a larger market of sophisticated, well-capitalised investors. The designation reinforces SEM’s attractiveness as a listing venue for global funds and specialized products. Securities listed on the Official Market of the SEM may be held in tax advantaged Individual Savings Accounts (ISA’s) and Personal Equity Plans (PEP’s) by UK investors. Holders of debt securities satisfying the Eurobond exemption and listed on the Official Market of the SEM are exempted from withholding tax on distributions underlying these debt securities. Inheritance tax advantages may accrue to UK holders of securities listed on the Official Market of the SEM.
SEM set up in 2006 the Development & Enterprise Market (DEM), which is a market designed for Small and Medium-sized Enterprises (SME’s) and newly set-up companies which possess a sound business plan and demonstrate a good growth potential. It is meant for companies wishing to avail themselves of the advantages and facilities provided by an organised and regulated market to raise capital to fund their future growth, improve liquidity in their shares, obtain an objective market valuation of their shares and enhance their overall corporate image.
Since 2008, the SEM embarked upon a fundamental reorientation of its development strategy to move away from its historical equity-centric domestic exchange focus to a multi-asset class international Securities Exchange status. This internationalisation process aims at moving up the value-chain of products listed/traded on the SEM platform and setting the stage for the Stock Exchange of Mauritius to gradually emerge as an attractive listing, trading and capital-raising platform offering a diversity of products and services for Global funds, Global business companies, Mining and Mineral companies, specialist-debt products, Africa-based ventures, Government securities, and become a centre of attraction for regional and global capital. Since then, SEM has listed some 50 international products. Amongst recent ones, SEM listed in 2016 the CoreShares S&P500 ETF, the first S&P500 product to be listed on an African Exchange, and also the CoreShares S&P Global Property40 Index,the first of its kind worldwide.
In line with the same strategic re-orientation, SEM in fact significantly reduced since December 2013, transaction fees on turnaround trades by 88% of the total brokerage fee from 1.25% to 0.15%. A turnaround trade on the SEM involves: (i) the selling of a security that has been purchased earlier during the same settlement cycle (i.e within 2 days of the initial purchase) to take advantage of an upward movement in the price of the underlying security, or (ii) the purchase of a security that has been sold earlier during the same settlement cycle (i.e within 2 days of the initial sale) to take advantage of a downward movement in the price of the underlying security, assuming that the investor holds the security in his/her securities account prior to the initial sale. This significant reduction in trading fees on turnaround trades for investors at large, is expected to increase the volume of transactions on the SEM over time, enhance active trading on the Exchange and boost liquidity. It will also reinforce the position of the SEM as an attractive listing, trading and capital-raising platform for local, regional and global issuers and contribute to the positioning of Mauritius as an attractive international financial services centre of substance.
In parallel, in January 2014, the SEM reduced transaction fees on corporate bond trading by 83%. Given the interest from listed issuers to raise capital through the issuance of corporate bonds, the implementation of the reduced fee structure has generated more active trading on these instruments, and thereby improved liquidity. This initiative has enhanced the attractiveness of investments in corporate bonds, and facilitated exit from these instruments. It has also potentially enhanced the scope of further listings of corporate bonds on the SEM.
In October 2014, the SEM replaced the SEM-7 Index by the SEM-10 Index. The rationale for the creation of the SEM-10 Index is that the underlying changes in the market environment since 1998 have underscored the need to re-actualize the previous SEM-7 Index, in order to better reflect current market conditions, and to introduce an Index that tracks the performance of the ten largest eligible stocks of the Official Market, measured in terms of market capitalization, liquidity and investibility criteria. The reserve-list now includes 5 stocks instead of three, meaning that investors are now able to constitute a benchmark portfolio of 15 actively traded stocks.
In line with its internationalisation strategy, the SEM has, in recent years, revised its listing framework to cater for the listing of a wider and more diversified range of products, as shown below:
2010 - Revamping of the Listing Rules to cater for the listing of Global funds (including collective investment schemes, specialised funds, real-estate funds and other focused fund structures).
2011 - Introduction of new Rules to cater for the listing of Global Business Companies and specialist debt instruments targeted towards qualified institutional and retail investors, including Eurobonds.
2012 - Introduction of new Rules to cater for the listing of Depositary Receipts and Mineral and Exploration companies.
2013 - Introduction of new Rules for the listing of Exchange Traded Funds.
2015 - Introduction of new Rules for the listing of Exchange Traded Notes and Structured Products.
In March 2015, SEM became the first Exchange in Africa to list a CoreShares S&P 500 ETF and a CoreShares S&P Global Property ETF. These two international products have the merit of offering to our local retail and institutional investors access to 500 of the largest international companies and 40 of the well-established international companies involved in the global real-estate sector. These two innovative listings were followed by the listing of the first ever ETF tracking Indian Sovereign bonds. In essence, the SEM has during the last five years been working closely with local and international service providers to introduce new international products for the benefit of our investors.
In September 2015, the SEM launched its sustainability index (SEMSI), new Index starting at 100 points, to bring its contribution to the sustainability agenda of positioning Mauritius as a sustainable island, add a social and environmental dimension to its mandate and join the league of international stock exchanges that have put sustainability at the forefront of their developmental agenda. SEMSI has an integrated approach and takes into consideration all four key pillars of sustainability (economic, environmental, social and corporate governance). The SEMSI criteria of eligibility are based on the Global Reporting Initiative G4 Guidelines and are aligned with international ESG and related sustainability issues, while also taking local imperatives into account. By setting up SEMSI, the SEM also took a leading role in creating a more sustainable capital market and became a signatory and Partner Exchange of the United Nation’s Sustainable Stock Exchanges initiative in 2015.
In early September 2016, the SEM added two new indices to its suite of indices; namely the SEM-All Share Index (SEM-ASI) and the SEM-VWAP Index. SEM-ASI is an index which will track the price performance of all companies listed on the Official Market, including the foreign-currency denominated companies, provided they meet the free-float requirements of the SEM. The creation of SEM-ASI was inspired by the listing of a growing number of Global Business companies on the SEM. These companies have not only grown in size but they have also been involved in appreciable trading activities. It therefore bacame opportune in 2016 to start tracking their price performance by including them in a new index. SEM-ASI not only increased SEM’s market capitalisation since September 2016, but it also today reflects the real size of the Exchange and helps to improve its visibility as an attractive capital-raising and listing platform for foreign currency denominated companies. Whilst, the SEM-VWAP index partially helps to neutralise index fluctuations triggered by small volume trades from time to time. The introduction of SEM-ASI triggered some incidental changes to the SEMDEX which since then, tracks only rupee-denominated companies listed on the Official Market.
From a foreign investment perspective, the Mauritius Bourse attracted strong foreign investor interest particularly over the last decade, generating positive investment inflows on many listed companies. Foreign investors currently account for about 40% to 45% of the daily trading volumes on the Exchange. For 2017/2018, we are already stepping up our efforts via international conferences and roadshows, to place the SEM on the radar screen of institutional investors who are keen on frontier emerging markets that are well regulated and adhere to international best practice.
SEM is today connected live to a top bracket of global vendors, enabling therefore both retail and institutional investors worldwide to follow our market on a real-time basis. The coverage of SEM’s data by global data vendors is a powerful marketing medium to enhance SEM’s visibility internationally and put the Exchange on the radar screen of a wider spectrum of institutional investors in particular which are all subscribers to global data vending terminals, thus attracting more foreign investor interest on our market. Similarly. the growing interest from international investors in recent years, has prompted well-known Index and Data Providers like S&P, Morgan Stanley, Dow Jones and FTSE to include our stock market in a number of new indexes they launched recently to track the evolution of some key frontier emerging markets.
In the light of the revision of the Mauritius/India DTAA, which positions Mauritius as an attractive jurisdiction to structure investments into Indian-rupee bonds issued by Indian corporates, SEM listed its first "Masala Bond' (Indian-rupee bonds issued by Indian corporate entities) in December 2016. Similarly, since December 2016, with a view to keep expanding its product offerings, SEM also introduced dual-currency trading on products which are listed in USD and other key international currencies. These products are traded simultaneously in an international currency and in Mauritius rupee, enabling local institutional and retail investors to invest in these products as part of the universe of local products. We expect this initiative to boost trading and liquidity in international products and global business companies that are listed on SEM, enhancing the attractiveness of SEM as a listing and trading platform for Global Business companies.
Over the last few years, SEM’s leadership and innovative agenda has been recognised at the highest level in the continent. SEM’s Chief Executive was elected as President of the African Securities Exchanges Association (ASEA) (the apex body regrouping 23 member Exchanges in the African region) between 2010 and 2014, and has contributed to raising the visibility of African Exchanges at the international level and improving the market ecosystem in Africa. SEM has also been very active at the global level as a member of the World Federation of Exchanges’ (WFE) (the apex body regrouping around 60 Exchanges from all around the world). SEM’s innovative drive and active involvement at the global level has been recognized by the member Exchanges of the WFE, which elected the SEM’s Chief Executive as a Director of the WFE Board for a 3-year term at the WFE’s recent general assembly in Seoul, South Korea.
SEM in fact won for the third time in five years, the "Most Innovative African Stock Exchange of the year Award" at the Institutional Investment Capital Market Awards 2015 organised by Africa investor (Ai), a leading international research and communication group. The Award was presented to the SEM at Thomson Reuters in New York on 25th September 2015. This recognition is a reflection of the SEM’s improved visibility at the international level and encourages SEM’s management to pursue its internationalisation strategy with a higher level of commitment and drive.
The last decade has been among the most enticing years for the Exchange in terms of new initiatives, breakthroughs and defining changes. Looking forward, although the Exchange environment worldwide is fraught with uncertainties, the SEM remains committed to its development strategy and aims at leveraging on its attractive and competitive advantages to make further meaningful inroads and generate value-add services in its drive to scale up its activities. In the years to come, the split of listings on SEM is expected to overwhelmingly consist of international funds, international issuers, specialised debt instruments, Africa-based ventures, a broader range of ETFs and structured products. The value of products traded and settled in USD, Euro, etc. is expected to increase over time, confirming the internationalised status of the SEM over time. As SEM also aspires to emerge as a capital raising platform for Africa-focused investments routed through the Global Business Sector, the SEM platform will growingly be used to channel investment flows from SA/Europe/Asia into Africa and from USA/Europe into Asia. The number of issuers, players and investors in our market will increase over time, increasing the breadth and depth of our market in Mauritius, and also contribute in enhancing the profile of Mauritius as an IFC.
A visual trip down the SEM's memory lane : Click here to view a video