In response to the limited investment options available to investors, the Ghana Stock Exchange (GSE) is making preparations to establish a formal commercial paper market.
This initiative aims to broaden the range of investment opportunities accessible to investors in the market.
The domestic bourse sees accommodating the increasing demand for diversification within the capital market as a key step and aims to provide investors with additional opportunities, in a bid to enhance the safety net against risks of default.
In an interview with the B&FT, GSE’s Managing Director Abena Amoah expressed enthusiasm about the progress made in establishing Ghana’s commercial paper market, saying: “We have submitted the work done by stakeholders to establish Ghana’s commercial paper market to the SEC, and we are eagerly awaiting their response”.
The collaboration between various stakeholders has been instrumental in developing a framework for the commercial paper market, similar to the approach taken for the fixed-income market, she said.
One notable aspect of the upcoming commercial paper market is a requirement for ratings on these issuances. This new feature will provide investors with valuable information and enhance their confidence in the market.
“You’ll find that many of them require a rating to give investors confidence that this credit is rated at B, and so this is the risk level and I can price it differently from an A-rated institution, for instance,” Ms. Amoah explained.
A commercial paper market will also facilitate the raising of additional capital by companies aiming to strengthen their positions. Public offers are expected to enter the market, offering investors a chance to diversify their investments.
Furthermore, the Exchange is collaborating with the Minerals Income Investment Fund to issue a gold-backed exchange-traded fund (ETF). This initiative will further expand the range of products available on the market, providing investors with increased diversification options. The ETF’s launch is anticipated to take place by September or before end of the year.
The move toward a formal commercial paper market is a significant development for Ghana’s financial landscape. Currently, an informal commercial paper market exists; but the formalisation of this market will enhance investor protection and instil a greater sense of security.
Ms. Amoah emphasised the importance of lending and capital formation in a growing economy, stating: “Lending is a critical part of capital formation. So for short-term loans – as long as the economy is growing, as long as businesses are growing, as long as our GDP is growing – companies have capital needs”.
The formal market will provide a regulated environment that assures investors of the credibility and reliability of commercial paper investments.
However, it should be noted that the formal trading platform will not be the sole avenue for commercial paper issuance. Some investors may still prefer to engage in over-the-counter (OTC) trading outside the formalised market. The market structure’s flexibility aims to accommodate the diverse preferences and needs of investors.
The introduction of a commercial paper market reflects the country’s commitment to expanding and diversifying its financial sector. By offering a regulated platform for short-term debt securities, GSE aims to attract more investors and foster economic growth.
The upcoming launch, along with the introduction of a gold-backed ETF, demonstrates the GSE’s dedication to providing a wide range of investment options and diversifying its financial markets in the face of current limited options available to investors.