markets please read on. Capital markets deal with the trade of financial products such as company shares, bonds issues by governments or private companies, units in Collective Investment Schemes, debentures, commercial paper and notes.

These financial products can also be referred to as securities and are generally traded on a stock (securities) exchange. In Uganda, the market where these securities are traded is called the Uganda Securities Exchange.

What is Capital Markets Authority?

It is a semi-autonomous body responsible for promoting, developing and regulating the capital markets industry in Uganda, with the overall objectives of investor protection and market efficiency. It was established in 1996 following the enactment of the Capital Markets Authority Act.

What does Capital Markets Authority do?

• Regulate and promote the development of capital markets in Uganda

• Approve stock exchanges

• License broker/dealers, investment advisors, fund managers and collective investment schemes.

• Approve all offers of securities to the public.

What is the difference between Capital Markets Authority and the Uganda Securities Exchange?

Capital Markets Authority (CMA) is the regulatory body that oversees the capital markets industry in Uganda, whereas the Uganda Securities Exchange (USE) is the actual market where capital markets products are traded. This market is sometimes known as the stock exchange. The USE is licensed and regulated by the CMA.

What products are available in the capital markets industry?

There are various products available in the capital markets industry. However, in Uganda’s capital markets industry there are three products in which one can invest. The three products are shares, collective investment schemes and bonds.

What is a share?

A share is a unit of ownership in a company. If you own shares in a company then you are a part owner of that company.

How do I benefit from investing in shares?

As a shareholder, there are several advantages that come with owning shares. These include:

• Dividends: When a company makes a profit, the board of directors may give a percentage of the profit to its shareholders. This is known as a dividend. In other cases, the directors can propose to retain the profits in the company in order to increase its capital. These are known as retained earnings. Shares therefore offer the possibility of an increasing income to the investor.

• Capital Growth: If the company is growing, the value of the shares will also grow.

• Capital Gains: When shares are sold at a price that is higher than the price at which they were purchased, this represents a profit. This profit is called a capital gain.

• Voting Rights: Shares give a shareholder the right to attend and vote on important company policies at the company’s Annual General Meetings.

• Collateral: Shares may be accepted as collateral (for example security for a loan).

• Transferability: Shares can be passed on from one person to another person; for instance, can be inherited.

Are there any disadvantages of investing in shares?

Much as there are many benefits associated with owning shares, there are some considerations that need to be taken on board, these include:

• Share prices go down or up depending on a number of factors such as the performance of the company, the economy, demand and supply factors.

• If the company’s profits fall, the dividend will fall and if the company makes a loss if may not pay any dividend at all.

• If the share prices fall, their value lessens and if the company collapses or becomes insolvent, the shares become worthless.

• If the company goes into liquidation, shareholders are the last to be paid after all other creditors.

How can I buy/sell shares?

You can buy shares during the Initial Public Offer (IPO) period or from existing shareholders. New issues of shares usually take the form of IPOs, where shares are sold for the first time to the public. This is referred to as the primary market.

The purchase from existing shareholders takes place in a secondary market where shares are traded on the stock exchange. CMA issues licenses to qualified firms or persons to transact business on the Exchange or give investment advice. These are known as broker/dealer and investment advisors.

What is a primary market?

This refers to the market in which a company offers its shares to members of the public for the first time. It is also known as an Initial Public Offer (IPO). To buy shares during the IPO, a share application form (SAF) is obtained from participating broker/dealers and authorised selling agents, which is completed by the prospective investor.

The Share Application Form (SAF) is then filled, payment is made and sent to the lead broker where the share allocation is made and a receipt issued to the purchaser.

If the offer is over-subscribed (applications exceeding the number of shares available), the shares available are divided among applicants according to the allotment criteria and the investor receives a refund for the shares paid for, but not received.

The successful applicants are then sent their share certificates through the broker/dealers or authorised selling agents. Remember that during an IPO, a prospectus/information memorandum is given out free of charge.

A prospectus is a legal document that gives general information about the company, which is offering its shares to the public like the company’s history and operations, products and services. It can be a notice, a circular, an advertisements or any other invitation offering the public a chance to purchase shares or securities of a company.

An information Memorandum is a document containing details about an issuer of debt securities such as corporate bonds. It contains information about the company, amount issued, purpose of the issue, whether it’s guaranteed or not, repayment terms etc…

Does the broker/dealer charge me for selling/buying my shares?On the secondary market, broker/dealers charge 2 percent of the total value of the transaction made as commission for helping you trade in shares. The charges are fixed as shown in the table below.

What is a secondary market?

This is the market in which the securities (shares or bonds) are traded on the stock exchange. At the secondary market, securities can only be bought/sold through a licensed broker/dealer, that is, a firm that buys and sells securities on behalf of investors for a commission or a brokerage fee.

The broker/dealer will provide all the necessary advice, that is, which securities to buy, but the ultimate decision to invest your money is up to you, the investor. Before investing in shares, you should be clear about your own financial position and what you hope to achieve from your investment. To sell shares, you need to contact a broker/dealer and instruct him/her to sell either all or some of your shares. Secondary market trading takes place at he Uganda Securities Exchange (USE) on Mondays, Tuesdays and Thursdays from 10.00am to 12.00 noon.

Can I be compensated if the value of my shares falls?

No! You cannot be compensated if the value/price of your shares falls. Like any other investment, investing in securities carries risk. The price of the shares can go up or down and if you chose to sell your shares at a particular time then you could either make a loss or a gain.

Do all shares have the same price?

No, shares, just like different commodities, have different prices. Some share prices may be higher or lower than others. This can depend on the valuation of the company shares, the nature and performance of the company or the demand and supply of particular shares. The prevailing share prices per company are published in a market report in the newspapers the day after trading or can be obtained from the Uganda Securities Exchange.

How much money do I need to buy shares?

The amount of money you need to buy shares depends on the number of shares you wish to purchase, and the share price. The amount of money increases with increase in the number of shares you wish to purchase, and the share price.

How many companies are listed on the Stock Exchange?

Currently (October 6, 2008) there are nine companies listed on the stock exchange: Uganda Clays Ltd, Bank of Baroda, British American Tobacco, Development Finance Company of Uganda (DFCU) Group, The New Vision Printing & Publishing Company Limited, Stanbic Bank Uganda Ltd, East African Breweries Ltd, Kenya Airways and Jubilee Holdings Ltd.

Apart from shares and bonds, what other products can an investor invest in?

The products on the market are Collective Investment Schemes (CISs). These are private financial arrangements that pool resources of many small savers, generating a large pool. The resources are then invested in various assets like shares, bonds, property and treasury bills with the sole purpose of generating high returns while maximizing risk through diversification of investments. CISs are also known as unit trusts or mutual funds.

What do I need to invest in Collective Investment Schemes?

In Uganda, there are three types of unit trust funds in which you can invest, each with different requirements.

The Balanced Fund: This is a long-term fund whose asset allocation is mainly in long term products and securities like bonds and shares. The minimum amount required to invest in this fund is UShs.50, 000 only.

The High Yield Fund: This is a fund whose asset allocation is in medium-term securities and products. The minimum amount required to invest in this fund is UShs. 50,000 only.

The Money Fund: This is a fund which invests in short-term products and securities like treasury bills, and current accounts. This fund is better suited for people who wish to save money over a short period of time. The minimum amount required to invest in this fund is UShs 250,000 only. To invest in CISs, contact a licensed CIS manager for further details.

For more information contact the Capital Markets Authority: This e-mail address is being protected from spambots. You need JavaScript enabled to view it