Uganda Securities Exchange (USE)

The Uganda Securities Exchange (USE) is the principal stock exchange of Uganda. It was founded in 1997 and is licensed under the Capital Markets Authority Act, which regulates the securities industry in Uganda. It acts as a platform for trading shares, bonds, and other financial instruments. The USE also provides a mechanism for companies to raise capital through Initial Public Offerings (IPOs).

History and Background

The USE was established to stimulate the capital markets in Uganda, which were still in a nascent stage during the 1990s. It became functional on January 25, 1998. The first company to be listed on the exchange was Uganda Clays Limited. Since then, the exchange has grown, listing more companies and diversifying its product offerings.

Objectives

The primary objectives of USE are to:

Market Structure

The Uganda Securities Exchange employs an electronic trading system, which replaced the manual call-over system in 2015. This system is known as the Automated Trading System (ATS). The ATS facilitates greater efficiency and transparency in the trading process.

Listed Companies

Currently, the USE has multiple companies listed across various sectors, including banking, telecommunication, and manufacturing. Some of the notable companies include:

For a complete list of companies and further details, you can visit the USE website.

Trading Hours

Trading at the Uganda Securities Exchange takes place on weekdays from Monday to Friday. The official trading hours are from 9:00 AM to 12:00 PM EAT (East Africa Time). However, the settlement window extends beyond these trading hours.

Products and Services

Equities

Equities are the primary type of security traded on the USE. Companies issue shares to the public, allowing them to become partial owners. The prices of these shares fluctuate based on demand and supply.

Bonds

The exchange also provides a platform for trading government and corporate bonds. These are debt securities that pay periodic interest and return the principal at maturity. Bonds are generally considered safer investments compared to equities.

Index

The Uganda Securities Exchange has developed indices to reflect the performance of the listed securities. One such index is the USE All Share Index (ALSI), which tracks the market capitalisation of all listed companies.

Derivatives

As of now, the USE does not offer derivative products like futures or options. However, plans are in place to integrate these products as the market matures.

Regulatory Framework

The USE operates under the oversight of the Capital Markets Authority (CMA) of Uganda. The CMA ensures that the exchange operates in a fair, transparent, and efficient manner. Regulatory frameworks cover aspects such as listing requirements, disclosure standards, and trading regulations.

Technological Infrastructure

The transition to an Automated Trading System has significantly improved the operations at the Uganda Securities Exchange. The system enhances liquidity and ensures more accurate price discovery. It also allows for real-time trading and minimizes operational risks. The ATS is integrated with the Securities Central Depository (SCD), which facilitates the electronic holding of securities and streamlines the settlement process.

Market Performance

The market performance is measured using various indicators such as price trends, trading volumes, and market capitalization.

Market Capitalization

Market capitalization is the aggregate valuation of all listed companies on the USE and serves as an indicator of the market’s size.

Trading Volume and Liquidity

Trading volume measures the number of shares exchanged during a given period, whereas liquidity refers to the ease with which assets can be converted into cash without significantly affecting their market price. Both metrics are crucial for evaluating market health.

Challenges

Limited Number of Listings

One of the major challenges facing the USE is the limited number of listed companies. This lack of depth restricts market liquidity and investor choices.

Low Trading Volumes

Another significant challenge is the low trading volume, which affects market liquidity. Limited public awareness and participation contribute to this issue.

Regulatory Hurdles

Stringent regulatory requirements can be a double-edged sword. While they might ensure transparency and investor protection, they can also deter companies from listing on the exchange due to compliance costs.

Technological Adoption

Although the ATS has improved trading efficiency, the full potential of technology has yet to be realized, particularly in areas like high-frequency trading and algo-trading.

Future Prospects

Despite these challenges, the Uganda Securities Exchange has significant growth potential. Plans include increasing the number of listed companies through incentives, enhancing technological infrastructure, and introducing new financial instruments like derivatives.

Financial Education

One critical area of focus is financial literacy. Educating the public about the benefits of investing in securities can drive higher participation rates.

Regional Integration

The USE is exploring collaboration with other East African stock exchanges to create a more integrated and robust regional market. This initiative could enhance cross-border trading, liquidity, and capital formation.

Digital Transformation

Further adoption of digital and mobile technologies can also boost market participation. For instance, mobile trading apps could make it easier for individual investors to engage with the market.

Conclusion

The Uganda Securities Exchange plays a pivotal role in the financial ecosystem of Uganda. While it faces several challenges, the potential for growth and development remains significant. Through regulatory support, technological advancements, and increased public awareness, the USE aims to become a more dynamic and influential player in the East African financial markets.

For more information, please visit the Uganda Securities Exchange official website.