ZERO DRAFT- CONFIDENTIAL AND ONLY FOR COMMENTS

Proclamation No [.....]/2020
Capital Markets Establishment Proclamation
Federal Democratic Republic of Ethiopia

WHEREAS, it has become necessary to establish capital markets to support the development
of the national economy through mobilising capital, promoting financial innovation, and
sharing investment risks;

WHEREAS, it is necessary to adopt a legal framework for regulation and supervision of

capital markets to ensure the fairness, integrity, and efficiency of these markets and protect
investors;

WHEREAS, it is necessary to develop uniform requirements for the regulation of issuers

who desire to raise capital from public investors;

WHEREAS, effective monitoring and surveillance of capital markets is necessary to detect,

mitigate, and prevent systemic risk to the country’s financial system;

NOW, THEREFORE, in accordance with Article 55(1) of the Constitution of the Federal
Democratic Republic of Ethiopia, it is hereby proclaimed as follows:

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 Table of Contents

PART I: GENERAL............................................................................................................................................6
1. Short Title....................................................................................................................................6
2. Definitions...................................................................................................................................6
PART II: CAPITAL MARKET AUTHORITY.................................................................................................12
3. Establishment of the Capital Markets Authority........................................................................12
4. Objectives of the Authority........................................................................................................12
5. Functions, Powers and Duties of the Authority..........................................................................12
6. Governance of the Authority......................................................................................................14
7. Composition and Appointment of Board of Directors................................................................14
8. Powers, Duties, and Meetings Procedures of the Board.............................................................16
9. Appointment, Powers, and Duties of Chief Executive Officer...................................................17
10. Powers and Duties of the Deputy CEO......................................................................................17
11. Appointment and remuneration of general staff.........................................................................18
12. Protection from legal prosecution..............................................................................................18
13. Delegation of functions..............................................................................................................18
14. Furnishing of information to the Authority................................................................................18
15. Funds of the Authority...............................................................................................................20
16. Financial year of the Authority..................................................................................................20
17. Accounts of the Authority..........................................................................................................20
18. External Audit of Authority’s Accounts....................................................................................20
Part IV: RECOGNITION OF A SELF REGULATORY ORGANIZATION....................................................21
19. Application for recognition........................................................................................................21
20. Rules..........................................................................................................................................21
21. Restriction on decision...............................................................................................................22
22. Disciplinary action.....................................................................................................................22
23. Protection from personal liability...............................................................................................22
24. Appointment of key personnel...................................................................................................23
25. Directions...................................................................................................................................23
26. Removal of an officer................................................................................................................23
27. Annual report.............................................................................................................................24
PART V: SECURITIES EXCHANGE..............................................................................................................24
28. Unlawful securities exchange....................................................................................................24

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 29. Establishment of the Securities Exchange..................................................................................24
30. Other Securities Exchanges.......................................................................................................26
31. Power to intervene, suspend and cancel securities exchanges licence........................................26
32. Appeal against direction of the Authority..................................................................................27
33. Management of securities exchange..........................................................................................27
34. Rules of Securities Exchange.....................................................................................................28
35. Responsibilities of a securities exchange...................................................................................28
36. Information sharing, reporting, and assistance to the Capital Markets Authority.......................28
37. Amendment to rules of a securities exchange............................................................................29
38. Use of certain titles....................................................................................................................29
PART VI: SECURITIES DEPOSITORY AND CLEARING COMPANY.......................................................29
39. Licensing...................................................................................................................................30
40. Obligations of SDCC.................................................................................................................30
41. Reporting on members...............................................................................................................30
42. Rules and Regulations................................................................................................................30
43. Counterparty Risk......................................................................................................................31
44. Business Continuity and Disaster Recovery...............................................................................31
45. Revocation of SDCC Licence....................................................................................................31
46. Appeal........................................................................................................................................32
47. Priority over ordinary debt.........................................................................................................32
PART VII: REGULATED CAPITAL MARKETS PRODUCTS AND SERVICES.........................................32
48. Regulated capital market products.............................................................................................32
49. Regulated capital markets activities and services.......................................................................32
50. Fit and Proper Persons...............................................................................................................34
51. Applications for licence.............................................................................................................35
52. Granting licence.........................................................................................................................35
53. Refusal, revocation and suspension of licences..........................................................................35
54. Rights of applicant.....................................................................................................................35
55. Appeals......................................................................................................................................36
56. Licensed Persons’ Accounts Review.........................................................................................36
PART VIII: CAPITAL MARKETS TRIBUNAL..........................................................................................37
57. Establishment of the Capital Market Tribunal...........................................................................37
58. The Jurisdiction of the Tribunal.................................................................................................37
59. Appointment of Members to the Tribunal..................................................................................37
60. Disqualification of the members of the Tribunal........................................................................37

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 61. Administration of the Tribunal...................................................................................................37
62. Finances.....................................................................................................................................38
63. Annual Report of the Commission.............................................................................................38
64. Filing of an Appeal....................................................................................................................38
65. Proceedings of the Tribunal.......................................................................................................38
66. Decision of the Tribunal............................................................................................................38
PART IX: PUBLICLY TRADED SECURITIES............................................................................................39
67. Registration of Securities...........................................................................................................39
68. Prospectus for Securities Issued by Companies.........................................................................39
69. Disclosure obligations................................................................................................................40
70. Trading of listed securities.........................................................................................................41
71. Trading of unlisted securities.....................................................................................................41
PART X: DISCLOSURE OF INTERESTS.....................................................................................................41
72. Definition...................................................................................................................................41
73. Submitted Information...............................................................................................................41
74. Notification of Changes.............................................................................................................42
75. Rules on “Insiders “and “Material Information”........................................................................42
76. Register of Disclosure................................................................................................................42
PART XI: INSIDER TRADING.......................................................................................................................42
77. Inside information......................................................................................................................42
78. Insider trading............................................................................................................................42
79. Insiders......................................................................................................................................43
80. Public Information.....................................................................................................................43
PART XII: IMPROPER TRADING PRACTICES............................................................................................44
81. False trading, misleading statement and market manipulation...................................................44
82. Fraudulent transactions..............................................................................................................45
83. Restrictions on selling of securities............................................................................................45
84. Offence and penalties.................................................................................................................45
PART XIII: ASSET BACKED SECURITIES..................................................................................................45
85. Interpretation.............................................................................................................................45
86. Restriction on issues, and offers of asset backed securities........................................................47
87. Forms of asset backed securities to be offered...........................................................................48
88. Nature of asset to be sold, transferred or assigned.....................................................................48
89. Origination of asset for sale, transfer or assignment..................................................................48
90. Trustees......................................................................................................................................49

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 91. Appointment of securitization manager.....................................................................................50
92. Appointment of securitization arranger......................................................................................50
93. Servicers, alternative servicers and successor servicers.............................................................50
94. The prospectus, offering memorandum or information notice...................................................51
95. Secondary sales or transfer of asset backed securities................................................................51
96. Obligation to conduct due diligence...........................................................................................51
97. Rating requirement and obligations of credit rating agencies....................................................52
98. General disclosure obligations...................................................................................................52
99. A summary of transferred assets................................................................................................52
100. Securitization requirements.................................................................................................52
PART XIII: ACQUISITION AND PROTECTION OF MINORITY INTERESTS..........................................53
101. Description..........................................................................................................................53
102. Acquisition Offer.................................................................................................................53
PART XIV: COMPENSATION FUND............................................................................................................54
103. Establishment of a Compensation Fund...............................................................................54
104. Directives of the Fund..........................................................................................................55
105. Sources of the fund..............................................................................................................56
106. Purpose of fund....................................................................................................................56
107. Disbursements from the fund...............................................................................................56
108. Management of the fund......................................................................................................56
109. Assets of the fund................................................................................................................56
110. Liability of fund to be limited..............................................................................................57
111. Recovery of disbursements from defaulters.........................................................................57
Part XV: COLLECTIVE INVESTMENT SCHEMES......................................................................................57
112. Description..........................................................................................................................57
113. Registration of collective investment schemes.....................................................................57
114. Investment Advisor of a collective investment scheme.......................................................58
115. Restrictions on collective investment schemes....................................................................58
Part XVI: MISCLLANEOUS............................................................................................................................58
116. Immunity of the Authority...................................................................................................58
117. Repeal –...............................................................................................................................58
118. Repeal of Inconsistent Provisions in other Proclamations and Directives............................59
119. Effective date.......................................................................................................................59

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 PART I: GENERAL
1. Short Title

This Proclamation may be cited as “Capital Markets Establishment Proclamation No […]

/2020.”

2. Definitions

In this Proclamation, unless the context otherwise requires:

1) “Advertisement” includes every form of advertising, whether:

a) In a publication, by the display of notices or by means of circulars, or other

documents;
b) By the exhibition of photographs, cinematograph films or videos;
c) By way of sound broadcast, television, or by the distribution of recordings; or
d) In any other manner;

2) “Arbitrage transaction” means a purchase or sale by a person on his/her own account of

securities on a securities exchange or facility with intent to sell or buy those securities on
other securities exchange or facility to profit by the difference between the prices of those
securities on such securities exchanges or facilities;

3) “Auditor” means an external auditor licensed by the pertinent government organ to

provide audit service.

4) “Banks” mean companies licensed by the National Bank of Ethiopia to undertake

banking business and banks owned by the Government.

5) “Capital markets” means a market where financial securities such as shares or equities,
bonds, and financial derivatives are bought and sold.

6) “Capital market instrument” means any long term financial instrument whether in the
form of debt, equity or derivatives developed or traded directly between two or more
parties for the purpose of raising funds or sharing risks for investment.

7) “Central Clearing Counterparty (CCP)” refers to the act of;

a) providing post-trade clearing and settlement services for transactions in securities;

and
b) taking on counterparty credit risks between parties to such a transaction.

8) “Central Securities Depository (CSD)” refers to a system;

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 a) for central handling of securities;

i. where securities are deposited and held in custody by, or registered in the name
of the company or its nominee company for depositors and dealings in respect of
these securities are effected by means of entries in securities accounts without
the physical delivery of certificates; or
ii. which permits or facilitates the registration, clearing & settlement of securities
transactions or dealings in securities without the physical delivery of certificates;
and

b) that provides other facilities and services incidental thereto.

9) “Securities Depository and Clearing Company (SDCC)” means any legal entity that
offers CSD, CCP, or both services.

10) “Citizens or citizenry” refers to Ethiopian nationals or foreign nationals of Ethiopian

origin.

11) “Company” means a share company as defined in the Commercial Code of Ethiopia.

12) “Custodian Banks” means banks that specialise in safe custody services, looking after
portfolios of shares and bonds on behalf of others, such as fund managers, pension funds
and insurance companies.

13) “Days” means calendar days excluding Saturdays, Sundays and public holidays.

14) “Dealer” means a person licensed under this proclamation to carry out the business of
buying, selling, dealing, trading, underwriting or retailing of securities.

15) “Dealing in Securities” means dealing in securities for own account or for the account of
others by sale or purchase, or by submitting an offer of sale or purchase or acquisition
regarding the same, or issuance, or public offer, or subscription, or waiver of the right to
subscribe, or marketing, or promoting, or undertaking to cover the subscription, or
custody, or listing, or depositing, or settling, or financing the dealing of, or lending, or
short sale, or pledge or waiver of Securities or any other transaction that the Authority
considers as Dealing in Securities.

16) “Debt security” means any instrument creating or acknowledging indebtedness issued or
proposed to be issued by a company including a debenture, debenture stock, loan stock,
bond or note.

17) “An exchange-traded fund (ETF)” refers to a collection of securities—such as stocks,

bonds, or commodities—that tracks an underlying index, and is listed and traded in a
stock exchange.

18) “Fund Manager” also known as “investment manager” or “portfolio manager” or “asset
manager” means a person or body corporate licensed to undertake the management of a
portfolio of investment for others.

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19) “Government and public debt security” means any loan stock, bond, note or other
instrument creating or acknowledging indebtedness issued by or on behalf of a
Government, statutory corporation, or local government authority.

20) “Investment bank” means a non-deposit taking financial institution that facilitate
creation of capital for other companies, governments, and other entities through
underwriting, acting as an intermediary between a securities issuer and the investing
public, facilitating mergers and other corporate reorganizations and acting as a broker or
financial adviser for institutional clients.

21) “Investment portfolio manager” means a Person entrusted with managing investment
portfolios on behalf of clients or for the benefit of the clients or the benefit of the
company in which he/she is employed.

22) “Investment” refers to:

a) securities listed on a licensed securities exchange or facility;
b) securities listed on a foreign securities exchange or facility;
c) participatory interests and or units in a collective investment scheme approved
under this Proclamation;
d) participatory interests and or units in a collective investment scheme licensed or
registered in a foreign country;
e) funds intended for the purchase of such securities, units or other instruments;
f) any other instruments declared to be investments for the purposes of this
Proclamation by the Capital Market Authority’s directive;

23) “Investment adviser” means a licensed person who:

a) carries out the business of advising others concerning investments;
b) as part of a regular business, issues or promulgates analyses or reports concerning
investment; or
c) a financial institution licensed to provide financial and investment advice on
particular type of investment such as bonds, commodities, mutual funds, and
stocks;

24) “Issuer” in relation to any securities, means the person by whom securities have been
issued or are to be issued and shall include a government, company or other legal entity
that offers securities to the public or a section thereof in Ethiopia.

25) “Licensed securities exchange” means a securities exchange to which an exchange

license has been issued in terms of this Proclamation;

26) “Listed securities” means securities listed or quoted on a licensed securities exchange;

27) “Listing Rules” or “listing requirements” mean, in relation to a securities exchange,

Rules governing or relating to:

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 a) The grant of a listing or quotation of, and permission to deal in, securities on a
securities exchange or the removal from listing and for other purposes; or
b) The activities or conduct of issuers and other persons who are admitted to that list,
whether those Rules:
i. are made by the securities exchange or are contained in any of the constituent
documents of the securities exchange; or
ii. are made by another person and adopted by the securities exchange;

28) “A financial intermediary” is an institution that serves as a middleman among diverse

parties in order to facilitate financial transactions.

29) “Financial Derivatives” means financial instruments which derive their value from the
value of the relevant assets such as shares, bonds, commodities, and currencies, and
which can be purchased or sold or traded in a similar method as the trading of shares or
of any other financial assets.

30) “National Bank” means the National Bank of Ethiopia established under the National
Bank of Ethiopia Establishment (As amended) Proclamation No. 591/2008.

31) “Offer to the public” means the sale of securities to the public in order to raise
capital.The terms “public offer’ and “public offering’ shall be construed accordingly.

32) “Initial public offering” means an offer to the public of any securities or a company, if:
a) no securities of that company have previously been the subject of an offer to the
public; or
b) all of the securities of that company that had previously been the subject of an
offer to the public have subsequently been re-acquired by the company.

33) “Market Maker” means A Person who ensures the availability of supply and demand
for one or more Securities according to such controls as may be laid down by the
Authority.

34) “Professional Investor” means a person whose ordinary business or regular activity
involves the buying and selling of securities.

35) “Promoter” is a firm or person who does the preliminary work incidental to the
formation of a company, including its promotion, incorporation, and flotation, and
solicits people to invest money in the company, usually when it is being formed.

36) “Public company” is a company whose ownership is organized via shares of stock
which are intended to be freely traded on a stock exchange or in over-the-counter
markets. A public company can be listed on a stock exchange (listed company), or not
(unlisted public company).

37) “A private placement” is a sale of securities to pre-selected investors and institutions

rather than on the open market.

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38) “Prospectus” refers to a document or a publication by, or on behalf of, a corporation
containing information on the character, nature, and purpose of an issue of shares,
debentures, or other corporate securities that extends an invitation to the public to
purchase the securities.

39) “Authority” means the Capital Market Authority referred to in Part II of this
Proclamation.

40) “Regulated Person” means any person who has been granted a license under this
proclamation, or any other proclamation for whose administration the Authority is wholly
or partly responsible or an approved securities exchange or any persons associated with
such licensees or approved stock exchanges.

41) “Registered venture capital company” means a company approved by the Authority
and incorporated for purposes of providing risk capital to businesses in Ethiopia with
high growth potential, whereby not less than eighty per cent of the funds so invested
consist of equity or quasi-equity investment in eligible enterprises.

42) “Rules” means, in relation to a securities exchange, the Rules governing the activities
and market conduct of a securities exchange or of its members.

43) “Securities” means any instrument - in any legal form - that evidences ownership of a
share in a financial transaction and that is negotiable pursuant to a license from the
Authority, such as:
a) Shares issued or proposed to be issued in the capital of a company
b) Any instrument that creates or acknowledges a debt issued or to be issued by a
company
c) Loans, bonds, Sukuk, and other instruments that can be converted to shares in the
capital of a company
d) All public debt instruments that are tradable and issued by the various government
entities or public institutions and authorities
e) Any right, option or derivative relating to Securities
f) Units in a collective investment Scheme
g) Any paper or instrument considered by the Authority as a Security for the
purposes of implementing this proclamation.

Not to be considered as Securities are; commercial papers such as cheques, promissory

notes, bills of lading, letters of credit, cash transfers and instruments negotiated by banks
exclusively between each other, insurance policies and rights arising from retirement
funds established for the benefit of the beneficiaries therefrom.

44) “Securities- broker or Stock-broker” means any person who is licensed to carry out the
business of buying and selling securities on behalf of other persons.

45) “Securities exchange or stock exchange” means, in relation to premises of a licensed

securities exchange, the one place in those premises which constitutes, maintains or
provides a market or a facility by means of which:

(a) offers to sell, purchase or exchange securities are regularly made or accepted;

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 (b) offers or invitations are regularly made, being offers or invitations that are
intended, or may reasonably be expected to result, whether directly or indirectly,
in the making or acceptance of offers to sell, purchase or exchange securities; or

(c) information is regularly provided concerning the prices at which, or the

consideration for which, particular persons or particular classes of persons,
propose, or may reasonably be expected, to sell, purchase or exchange securities;
or

(d) clearing service for securities traded in the exchange takes place.

46) “Secondary Market” means market or markets where the sale and purchase of
previously issued Securities are executed and ownership is transferred in accordance with
the bylaws, regulations and laws that govern the same.

47) “Self-regulatory organisation” means a Person that is organized for the purpose of
regulating the operations and the standards of practice and business conduct, in capital
markets, of its members and their representatives with a view to promoting the protection
of investors and the public interest.

48) “Share” means a share in the share capital of a body corporate, a unit in a unit trust or an
interest in any collective investment scheme.

49) “Suspicious transaction” means a transaction which is inconsistent with a client’s

known legitimate business or personal activities or with the normal business for that
client’s type of account or business relationship or a complex and unusual transaction or
pattern of transactions that has no apparent or visible economic purpose.

50) “Unit trust” means any scheme or arrangement in the nature of a trust in pursuance
whereof members of the public are incited or permitted, as beneficiaries under the trust,
to acquire an interest or undivided share (unit of investment) in one or more groups or
blocks of specified securities and to participate proportionately in the income or profits
derived therefrom.

51) “Untrue statement” includes a statement that is misleading in the form and context in
which it is made. It also includes an omission from a prospectus or written statement of
any matter that, in the context, is calculated to mislead by omission and constitutes the
making of an untrue statement in that prospectus or written statement, irrespective of
whether these Regulations/Proclamation requires that matter to be included in the
prospectus or written statement.

52) “Underwriting” means the purchase of newly issued securities for the purpose of public
resale on behalf of the issuer, or the guaranteeing to an issuer that the unsold residue of
the issuer’s public issue or sale will be taken up;

53) “Warrant” means any right, whether, conferred by warrant or otherwise, to subscribe for
shares or debt securities.

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 PART II: CAPITAL MARKET AUTHORITY

3. Establishment of the Capital Markets Authority

1) There is hereby established an authority to be known as the Capital Markets

Authority of Ethiopia (the “Capital Market Authority” or the “Authority”).

2) The Authority shall be accountable to the Parliament.

3) The Authority shall be a body corporate with perpetual succession and a common
seal and shall be capable in its corporate name of -
a) suing and being sued,
b) purchasing or otherwise acquiring, holding, charging and disposing of both
movable and immovable property;
c) borrowing money;
d) entering into contracts; and
e) doing or performing all such other things or acts necessary for the proper
performance of its functions under this Proclamation which may lawfully be
done by a body corporate.

4. Objectives of the Authority

The principal objectives of the Authority shall be to: –

1) Promote the development of capital markets by removing any impediments and
creating incentives for long term investments;

2) Ensure the existence of capital markets ecosystem in which securities can be issued
and traded in an orderly, fair, efficient and transparent manner;

3) Protect investors; and

4) Reduce systemic risk by ensuring the integrity of capital markets and transactions.

5. Functions, Powers and Duties of the Authority

For the purpose of carrying out its objectives, the Authority may exercise, perform or
discharge all or any of the following powers, duties and functions:

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1) Issue directives, guidelines and notices on all matters within the jurisdiction of the
Authority under this Proclamation;
a) The Authority may issue directives to regulate:-
i. listing and de-listing of securities on a securities exchange;
ii. disclosures about securities transactions.
b) All directives, rules, guidelines and notices formulated under subsection (1.a)
above shall:–
i. take into account and be consistent with the objective of the Authority; and
ii. be exposed for comment by stakeholders and the general public for a period
of thirty days through notification in at least two daily newspapers of
national circulation and/or the electronic media.

2) Grant licence to any person to operate as a securities broker, securities dealer,

investment adviser, fund manager, investment bank, collective investment schemes
or any other activity deemed by the Authority as a regulated activity in its
jurisdiction.

3) Grant approval to any person to operate as a securities exchange, derivatives

exchange, credit rating agency, securities depository and clearing company,
custodian, registered venture capital company or in any other capacity which directly
contributes to the attainment of the objectives of this Proclamation.

4) Implement policies and programs of the Government with respect to the capital
markets.

5) Develop a framework to facilitate the use of information technology to effect

linkages among functions provided by licenced persons or other market participants
and describe technology platforms that allow:–
a) the transfer and dissemination of market information to a wider number of users
within and between networks;
b) the offer, distribution or delivery in electronic form of securities or services
ordinarily provided by licensed persons; and,
c) the execution of securities transactions without the need for parties to the
transaction to be physically present at the same location.
6) Impose sanctions for breach of the provisions of this Proclamation or the regulations
made thereunder, or for non-compliance with the Authority’s requirements or
directions, and such sanctions may include: –
a) levying of financial penalties, proportional to the gravity or severity of the
breach; [penalty to be determined]
b) ordering a person to remedy or mitigate the effect of the breach, make
restitution or pay compensation to any person aggrieved by the breach;
c) publishing findings of malfeasance by any person;
d) suspending or cancelling the license and authorization of the capital market
participant, and listing of any securities for the protection of investors;
7) Inquire into the affairs of and give directions to investigate, any person which the
Authority has approved or to which it has granted a licence and any public company
the securities of which are publicly offered or traded on an approved securities
exchange or on an over the counter market.

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8) Conduct inspection of the activities, books and records of any persons approved or
licenced by the Authority.

9) Approve the appointment of external auditors of licensed and authorized market

participants.

10) Appoint an auditor to carry out a specific audit of the financial operations of any
licensed and authorized market participants, at the expense of such market
participants, as deemed necessary.

11) Facilitate the creation and management of a compensation fund and grant
compensation to any investor who suffers pecuniary loss resulting from the failure of
a licenced broker or dealer to meet his contractual obligations.

12) Have recourse against any person whose act or omission has resulted in a payment
from the Compensation Fund.

13) Have oversight over the activities of self-regulatory organizations, securities

exchanges, derivatives exchanges, and securities depository and clearance
companies.

14) Co-operate or enter into agreements for mutual co-operation with other regulatory
authorities for the development and regulation of cross-border activities in capital
markets.

15) Regulate and oversee the issue and subsequent trading, both in primary and
secondary markets, of capital market instruments.

16) Regulate the use of electronic trading platforms for dealing in securities or offer
services ordinarily carried out by a licensed person.

17) Trace any assets, including bank accounts, of any person who, upon investigation by
the Authority, is found to have engaged in any fraudulent dealings in an issuer and its
securities or insider trading.

18) In writing, order caveats to be placed against the title to such assets or prohibit any
such person from operating any such bank account as may be directed by the
Authority, pending determination of any charges instituted against that person.

19) Prescribe notices or guidelines on corporate governance of a company whose

securities have been issued to the public or a section of the public.

20) Do all such other acts as may be incidental or conducive to the attainment of the
objectives of the Authority or the exercise of its powers under this Proclamation.

6. Governance of the Authority

The Authority shall have:

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1) Board of Directors (hereinafter the “Board”)

2) A Chief Executive Officer (hereafter the “CEO”) and Deputy Chief Executive Officer
(hereafter “Deputy CEO”); and

3) The necessary staff.

7. Composition and Appointment of Board of Directors

1) The Board shall constitute:

a) The CEO of the Authority;
b) The Minister of Finance or a person deputed by him/her in writing for the
purposes of this Proclamation;
c) The Governor of the National Bank of Ethiopia or a person deputed by
him/her in writing for the purposes of this Proclamation;
d) The Attorney-General or a person deputed by him/her in writing for the
purposes of this Proclamation; and
e) Three other members representing investors and non-governmental
stakeholders.
2) Members of the Board under paragraph (e) of subsection (1) shall be appointed by
Parliament upon recommendation by the Prime Minister.

3) The Board shall have a Chairperson appointed by the Prime Minister from the Board
members.

4) The Chairperson and every member of the Board appointed under paragraph (e) of
subsection (1) shall be appointed from amongst persons who have experience and
expertise in legal, finance, economics, management, or related disciplines.

5) The Chairperson and every member of the Board appointed under paragraph (e) of
subsection (1) shall hold office for a period of three years and shall be eligible for re-
appointment for a further term of three years.

6) The members of the Board under paragraph (e) of subsection (1) shall be appointed at
different times so that the respective expiry dates of their terms of office shall fall at
different times.

7) Any member of the Board appointed under paragraph (e) of sub-section (1) shall
cease to hold office if-
a) he/she delivers to the Parliament a written resignation of his/her appointment;
b) he/she is found to be incapacitated by mental or physical illness or is
otherwise unable or unfit to discharge the functions of a member or is unable
to continue as a member;

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 c) he/she has been absent from three consecutive meetings of the Authority
without leave or good cause;
d) he/she is adjudged bankrupt or enters into a composition scheme or
arrangement with his creditors;
e) he/she is sentenced by a court to imprisonment for a term of six months or
more; or
f) he/she is convicted of an offence involving dishonesty, fraud or moral
turpitude.
8) In the event of vacation of office by any member appointed under paragraph (e) of
subsection (1), the Prime Minister may recommend another person to hold office for
the expired period of the term of office of the member in whose place he/she is
appointed.

9) If any member of the Board appointed under paragraph (e) of subsection (1) is
temporarily unable to perform his/her duties, the Prime Minister may recommend
another person to act in his/her place during the period of his/her absence.

10) The members of the Board shall be paid such remuneration and allowances out of the
general fund of the Authority as may be determined by the Parliament.

8. Powers, Duties, and Meetings Procedures of the Board

1) The powers, responsibilities and functions of the Capital Markets Authority provided
for in this Proclamation shall be vested in the Board of Directors.

2) The presence of four members of the Board shall constitute a quorum; provided,
however, that one of them shall be the CEO of the Authority.

3) The Board shall meet at least monthly; provided, however, that the Chairperson or, in
his/her absence, the person delegated by him/her, may call a meeting at any time or
when the CEO or three Board members so request.

4) The Chairperson or a Board member delegated by him/her shall preside at every

meeting of the Board. If the chairperson is unable to delegate a Board member in
his/her absence, the CEO shall preside the Board meeting.

5) All decisions of the Board shall be made by a simple majority vote of the members
present. In case of a tie, the Chairperson shall have a casting vote.

6) The Board may, where it deems necessary, delegate its powers to the CEO.

7) The Board shall have its own secretary.

8) Minutes of meetings of the Board shall be recorded accurately and in such form as the
Board may determine. Unless the Board decides otherwise, minutes of the Board shall
be confidential.

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9) The Board shall have an Audit Committee composed of at least three Board members.
The Audit Committee shall receive and examine the findings and recommendations
of the internal and external auditors and also give the necessary direction for the
implementation.

10) The Board may adopt its bylaws to determine the specific roles of the chairperson and
Board members and agenda items for periodic meetings, to ensure proper
participation or attendance of Board members, to set up Board self-assessment
systems, to manage conflict of interest and to determine on other relevant matters
which enable the Board to discharge its duties and responsibilities.

9. Appointment, Powers, and Duties of Chief Executive Officer

1) The CEO and deputy CEO shall be appointed by Parliament upon recommendation
by the Prime Minister.

2) Senior executives shall be appointed by the Board up on recommendation of the

CEO.

3) No person shall be qualified for appointment under this section unless such person:-
a) has at least ten years’ experience at a senior management level in matters
relating to law, finance, economics, management, or related issues; and
b) has expertise in matters relating to money or capital markets or finance.

4) The CEO shall direct and supervise the administration and operations of the Authority
in accordance with this Proclamation and the decisions of the Board.

5) The CEO shall prepare the plans and annual budgets of the Authority and, upon
approval by the Board of Directors, implement the same.

6) The CEO shall be the principal representative of the Authority, and in this capacity
shall;
a) represent the Authority in its all relations with other persons, the Government,
and international bodies in which the Authority is a member;
b) sign individually or jointly with other authorized officers of the Authority
contracts concluded by the Authority, securities issued by the Authority,
annual reports, balance sheets, profit and loss statements, correspondence and
other documents of the Authority; and
c) represent the Authority, either personally or through counsel, in any legal
proceeding to which the Authority is a party.

7) The CEO may delegate part of his/her powers and duties to his/her deputy and other
officers of the Authority, as may be required for the efficiency of the Authority.

8) The CEO shall, in all his/her actions, be guided by the objectives of the Authority as
set out in Article 4 of this Proclamation.

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10. Powers and Duties of the Deputy CEO

The deputy CEO of the Authority shall assist the CEO and, in the absence of the CEO,
shall discharge all the functions conferred on the CEO.

11. Appointment and remuneration of general staff

1) The Authority may appoint such other officers as it considers necessary for the
efficient discharge of its responsibility and functions.

2) The officers appointed under subsection (1) shall be remunerated in such manner and
at such rates, and shall be subject to such conditions of service, as may be determined
by the Authority.

3) Every officer or servant appointed under subsection (1) shall, subject to this
Proclamation, exercise such powers and functions and perform the duties assigned to
him from time to time by the chief executive officer.

12. Protection from legal prosecution

1) Neither the Authority, any of its members nor officers shall be personally liable for
any act which in good faith is done or purported to be done by such person, on the
direction of the Authority or in the performance or intended performance of any duty
or in the exercise of any power under this Proclamation or the regulations, guidelines
or notices made thereunder.

2) Any expenses incurred by any person referred to in subsection (1) in any suit or
prosecution brought against him/her before any court in respect of any act which is
done or purported to be done by him/her under the Proclamation or on the direction of
the Authority shall, if the court holds that such act was done in good faith, be paid out
of the general fund of the Authority, unless such expenses are recovered by him/her
in such suit or prosecution.

13. Delegation of functions

1) The Authority may delegate any of its functions under this Proclamation to:–
a) a committee that is established for specific purpose;
b) a recognized self- regulatory organization; or
c) an authorized person.
2) The Authority may, at any time, revoke a delegation under this Article.

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3) A delegation made under this Article shall not prevent the Authority from performing
the delegated function.

14. Furnishing of information to the Authority

1) The Authority or any person officially authorized in that behalf by the Authority may,
by notice in writing, require any person engaged in activities under the Authorities’
jurisdiction to furnish to the Authority or to the authorized person, within such period
as is specified in the notice, all such returns or information as specified in such notice.

2) The Authority or any member thereof, or any officer or servant of the Authority, shall
not disclose to any person or use any return or information acquired under subsection
(1) except for the purpose of achieving the objectives of the Authority unless required
to do so by a court of law.

3) Notwithstanding subsection (2), the Authority may, where it receives a request from a
regulatory body, whether established within or outside Ethiopia, for assistance in
investigating a person specified by the regulatory body who has contravened or is
contravening any legal or regulatory requirements which:–
a) are enforced or administered by that regulatory body; or
b) relate to securities transactions regulated by that regulatory body, and where it is
of the opinion that the request meets the requirements of subsection (5).
provide the assistance requested for by exercising any of its powers under this
Proclamation or by providing such other assistance as the Authority may consider
necessary.
4) For the purposes of subsection (3), the provisions of this Proclamation shall, with
such modifications as may be necessary, apply and have effect as if the contravention
of the legal or regulatory requirement referred to in subsection (3) were an offence
under this Proclamation.

5) A regulatory body which requests for assistance under subsection (3) shall
demonstrate that: –
a) it is desirable or expedient that the assistance requested should be provided in the
interest of the public; or
b) the request shall assist the regulatory body in the discharge and performance of its
functions.
6) The Authority shall, in deciding whether the requirement under subsection (5) is
satisfied in a particular case, take into account whether the regulatory body shall:–
a) pay the Authority any of the costs and expenses incurred in providing the
assistance; and
b) be able and willing to provide reciprocal assistance within its jurisdiction in
response to a similar request for assistance from Ethiopia.

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7) Nothing in this section shall be construed to limit the powers of the Authority to
cooperate or coordinate with any other regulatory body in the exercise of its powers
under this Proclamation; in so far any such cooperation or coordination is not
contrary to the objectives of this Proclamation.

15. Funds of the Authority

1) The Authority shall have the authority to determine and collect levies, fees and
penalties from capital market participants for its services or to cover the cost of its
operations.

2) The funds of the Authority shall consist of:

a) Moneys payable to the Registrar from moneys appropriated for the purpose by
proclamation of Parliament;
b) Levies payable to the Authority;
c) Fees and charges payable to the Authority for licences issued and other things
done by it in terms of this Proclamation; and
d) Any other money that may vest in or accrue to Authority whether in terms of
this Proclamation or otherwise.

3) Money not immediately required by the Authority may be invested in such a manner
as the Authority may determine.

16. Financial year of the Authority

The financial year of the Authority shall be the period of twelve months beginning the 1 st
day of July of each year;

17. Accounts of the Authority

1) The Authority shall ensure that proper accounts and other records relating to the
accounts are kept in respect of all its activities, funds and property.

2) Within three months after the end of each year, the Authority shall prepare statement
of financial accounts and all other transactions.

18. External Audit of Authority’s Accounts

1) Subject to the Audit and Public Accounts proclamation, the Board of Directors of the
Authority shall appoint an external auditor annually.

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2) The audit report shall be completed and issued to the Board’s Audit Committee for
review and approval, and subsequently submitted to the Government, within six
months from the end of each financial year.

3) A dully audited and signed by Auditor concerning balance sheet and annual profit and
loss statement shall be published in the annual report to be issued by the Authority.

Part IV: RECOGNITION OF A SELF-REGULATORY

ORGANIZATION
19. Application for recognition

1) An organization under the jurisdiction of the Capital Markets Authority which intends
to be recognized and operate as a self-regulatory organization shall apply to the
Authority, in the prescribed form.

2) An application made under subsection (1) shall specify the functions and powers that
the entity is seeking to exercise upon recognition.

3) The Authority may, in respect of an application made under subsection (1), subject to
such terms and conditions as it considers necessary, by notice in the Gazette, declare
an organization to be a recognized self-regulatory organization where it is satisfied
that the organization –
a) has internal rules and policies which are consistent with this proclamation or
related regulations and directives;
b) has the financial capacity and administrative resources necessary to carry out
its functions as a self-regulatory organization, including dealing with a breach
of the law or of any other applicable standards or guidelines;
c) is a fit and proper;
d) has competent personnel for the carrying out of its functions; and
e) satisfies such other conditions as may be required by the Authority.

4) An entity which operates or purports to operate as a self-regulatory organization

without being recognized as such by the Authority commits an offence. [penalty to be
determined]

5) The Authority may, in writing, delegate any of its powers or functions to a self-
regulatory organization.

6) A delegation made under subsection (5), shall specify –

a) the function or power delegated to the self-regulatory organization;
b) the extent of disciplinary powers delegated and the scope of sanctions that
may be imposed;
c) the terms and conditions upon which the power or function has been delegated
and may be exercised ;
d) the persons authorized to exercise the delegation on behalf of the self-
regulatory organization;

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 e) the manner in which a self-regulatory organization shall submit a periodical
reports to the Authority in respect of the exercise of a delegated power or
function; and
f) any other matter as the Authority may prescribe.

20. Rules of the self-regulatory organization

1) A self-regulatory organization shall make rules relating to the matters for which it has
regulatory or supervisory functions, including any sanction and disciplinary powers to
be exercised in connection with the functions delegated to it.

2) The rules made under subsection (1) shall make provisions relating to –
a) management structures and shareholding rights of the self-regulatory
organization taking into consideration the interests, rights and liabilities of its
members, consumers, investors and users of their services;
b) rules of membership and conditions for approval and admission of members;
c) the procedure for dispute resolution between members, users, investors and
their clients and the right of appeal to the Authority or other relevant primary
regulator; and
d) the rules and procedures of self-regulatory organization with respect to
reporting and accountability to any primary regulator other than the Authority.
e) mechanisms of protecting personal data of the data subjects in compliance
with the principles of data protection as set out by the Authority.

3) The rules made under subsection (1) shall not be implemented unless approved by the
Authority.

4) A self-regulatory organization shall submit any amendments to its constitution to the

Authority for approval before the amendments come into operation.

21. Restrictions on decision

A self-regulatory organization shall not make a decision, under its rules, which adversely
affect the rights of a person unless the self-regulatory organization;
1) has given that person an opportunity to make representations about the matter; or
2) considers, on a reasonable ground, that a delay in making the decision will prejudice a
class of consumers.

22. Disciplinary action

1) A self-regulatory organization may take a disciplinary action against any of its

members in accordance with its rules, if the member contravenes any provisions of
the rules.

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2) A self-regulatory organization shall, where it has taken a disciplinary action under
subsection (1), immediately inform the Authority, in writing, of the name of the
member, the reason and the action taken, the amount of any fine and the period of
suspension if any.

3) The Authority may, on its own motion or on application by an aggrieved person,

review any disciplinary action taken under subsection (1) and may affirm, modify or
set aside the decision after giving the aggrieved person and the self-regulatory
organization an opportunity to be heard.

4) Nothing in this section shall preclude the Authority, in any case where a self-
regulatory organization fails to act against its member, from suspending, expelling or
otherwise disciplining a member of the self-regulatory organization.

5) The Authority shall, before taking any action under subsection (4), give the licenced
person and the self-regulatory organization an opportunity to be heard.

6) Any action taken by a self-regulatory organization under subsection (1) shall not
prejudice the power of the Authority to take any further action as it considers
necessary with regard to the licence d person.

23. Protection from personal liability

No civil liability, whether arising in contract, tort, defamation, equity or otherwise shall
be incurred by-
1) a self-regulatory organization; or
2) any person acting on behalf of a self-regulatory organization including –
a) any member of the Board of directors, employee or agent of the self-regulatory
organization; or
b) any member of any committee established by the self-regulatory organization;
in respect of anything done or omitted in good faith in the discharge of the duties
delegated to the self-regulatory organization under this Part or in the performance of its
functions under its rules.

24. Appointment of key personnel

A self-regulatory organization shall not change its key personnel except with the prior
written notification to the Authority of such intention to change and receipt from the
Authority of a confirmation that it has no objection to the proposed change.

25. Directions

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1) The Authority may, after giving a self-regulatory organization reasonable opportunity
to be heard in respect of any matter, give direction, in writing, to the self-regulatory
organization in terms of this section.

2) A direction given under subsection (1) may-

a) suspend a provision of the constitution or rules of a self-regulatory
organization for a period specified in the direction;
b) require a self-regulatory organization to amend its rules; or
c) require a self-regulatory organization to implement or enforce its constitution
or its rules.

26. Removal of an officer

The Authority may, if it reasonably believes that –

a) an officer of a self-regulatory organization is not a fit and proper person to be
an officer of the organization; or
b) an appointment of a person or continuing in office as an officer of a self-
regulatory organization is likely to be detrimental to the self-regulatory
organization or may prejudice the interest of investors and consumers of
financial services or members of the relevant sector or industry,
after giving the officer and the self-regulatory organization an opportunity to be heard,
direct the self-regulatory organization not to appoint the officer, or to remove the officer
from office.

27. Annual report

1) A self-regulatory organization shall, within ninety days after the end of every
financial year, submit to the Authority, its financial statement and an annual report
which shall include –
a) a report on the corporate governance policy of the self-regulatory
organization;
b) financial statements prepared and audited in accordance with the accounts and
audit requirements for regulated persons; and
c) such other requirements as may be specified by the Authority.

2) An auditor who, in the course of his audit, has reason to believe that –
a) there is or has been an adverse change in the risks inherent in the business of a
self-regulatory organization with the potential to jeopardize its ability to
continue as a going concern;
b) the self-regulatory organization may be in contravention of any provisions of
this Act, or directions issued by the Authority;
c) a financial crime has been or is likely to be committed; or
d) serious irregularities have occurred;
shall report the matter, in writing, to the Authority.
3) A report made under subsection (2) shall not constitute a breach of the duties of the
auditor.

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 PART V: SECURITIES EXCHANGE

28. Unlawful securities exchange

1) A person shall not establish or launch a business as a securities exchange or a

derivative exchange, or hold him/herself out as creating, a securities market or a
derivatives market that is not licensed or approved as a securities exchange or a
derivative exchange by the Authority under this Proclamation.

2) It is unlawful for a person to use the words “securities exchange”, “derivatives

exchange” or “futures exchange” in connection with a business except with an
exchange license granted by the Authority.

3) A person who contravenes this Article shall commit an offence. [penalty to be

determined]

29. Establishment of the Securities Exchange

1) The Authority shall grant an exchange license to the Ethiopian Securities Exchange
(hereunder the “Exchange”), which shall be established as a share company.

2) The capital of the Exchange shall be determined by the Board of Directors of the
Authority, and its activity shall be restricted solely to operating a securities exchange.

3) The Authority shall be in charge of establishing the Exchange and distributing its
shares as follows:

a) Not less than 5% and not more than 25% shall be allocated to the government and
government-owned entities.

b) Not less than 25% and not more than 55% shall be allocated for body corporate,
capital market intermediaries, and international securities exchange operators. The
total shore holdings of international securities exchange operators and other
foreign investors shall not exceed 25% of the Exchange’s capital.

c) Not less than 20% and not more than 40% of the shares shall be publicly offered
for the citizenry. An individual citizen shall own no more than 5% share of the
Exchange.

d) In the instance where there is no sufficient demand from the citizenry, the
maximum limit on shareholdings by body corporate, capital market
intermediaries, and international securities exchange operators set in (b) of this
section can be increased up to 75%.

e) In the instance where there is no sufficient demand from the citizenry, body
corporate, capital market intermediaries, and international securities exchange
operators, the maximum limit on government shareholdings set in (a) of this sub-
article can be increased up to 100%.

25
4) In the instance where sub-section 3(e) is to materialize and if the exchange is 100%
owned by the government and government-owned entities, the exchange shall be
established by regulations of the Councils of Ministers.

5) The Capital Markets Authority shall distribute the shares of the exchange in line with
section (3) and with the following priority:

a) First, the minimum allocations shall be offered to all parties as per sub-sections
3(a), 3(b) and 3(c);
b) Second, the citizenry and body corporate, capital market intermediaries, and
international securities exchange operators shall be offered up to the maximum
allowed limit as set out in sub-sections 3(b) and 3(c).
c) Third, if there are unclaimed shares, the government shall increase its ownership
up to the maximum allowed limit of 25% as per sub-section 3(a).

d) Finally, the remaining shares shall be allocated as per sub-sections 3(d) and 3(e).

6) The Authority shall advertise the share offer through printed, audio, and video media
of Ethiopia.

7) Shares allocated to citizens shall be distributed proportional to individual demands

received during the offers dates, to be announced by the Authority, and at a uniform
price to be determined by the Authority.

8) Shares allocated for body corporates, capital market intermediaries, and international
securities exchange operators shall be distributed through a bid. The Authority shall
establish rules and conditions concerning bidders and the bid process.

30. Other Securities Exchanges

The Authority may grant license to other securities exchanges or derivatives exchanges,
whose capitals, activities, conditions of work and management, and any other related
matters, shall be specified by a directive issued by the Authority.

31. Power to intervene, suspend and cancel licences of a securities exchange

1) The Authority may direct, by notice in writing, that a securities exchange or

derivative exchange shall be closed for such period as may be specified in the
direction, where-

a) there is a major market disruption which prevents the market from accurately
reflecting price signals based on the forces of demand and supply for such
securities;
b) there is a threatened or actual manipulation of the market;
c) the Authority considers it necessary or beneficial in the interest of the public or
for the protection of investors’ interest;
d) there is in place, an act of Government affecting the trading of securities.

26
2) The Authority may take such steps as it considers necessary to;
a) Maintain or restore the fair, efficient and transparent trading in securities or any
classes of securities or exchange-traded derivative contracts.
b) Liquidate any position in respect of any securities or any classes of securities or
exchange-traded derivative contracts.

3) A dealer who deals in securities at or through a securities exchange while a direction

is in force under this section with respect to the exchange shall be guilty of an
offence. [penalty to be determined]

4) By virtue of a written notification to the securities exchange, the Authority may

cancel the securities exchange’s license as of the date specified in the Authority’s
resolution in the following cases:
a. If the company is no longer able to meet one of the conditions by which the
company was qualified to obtain a license.
b. If operations in the securities exchange has been suspended for more than five
working days without a reasonable cause.
c. If the securities exchange does not abide by the Authority’s instructions in
spite of being notified by the Authority.
d. If the securities exchange does not provide the Authority with the information
requested by the latter or if it provides misleading or inaccurate information.

5) The Authority shall publish the decision of license cancellation and reasons thereof in
the Official Gazette.

6) The Authority on its own accord, may grant the securities exchange time extension or
extend given period after the date of license cancellation in case the Authority deems
it to be in the interest of the public, or based on a request by the securities exchange
until the closure of its operations or to handover its activities to another licensed
securities exchange.

32. Appeal against direction of the Authority

1) A securities exchange that is dissatisfied by a direction of the Capital Markets

Authority under Article 31 may, within thirty days after the direction is given, appeal
to the capital markets Tribunal.

2) The Tribunal may confirm, quash or vary the direction of the Authority.

3) The Tribunal’s decision on the appeal shall be final and binding except as to any
matter of law, and in cases in which the appeal is allowed, it shall be the duty of the
Authority to give effect to the Tribunal’s decision.

4) The Authority’s direction is not stayed by the lodgment of an appeal, pending the
decision of the Tribunal.

33. Management of securities exchange

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1) The affairs of a securities exchange shall be managed by the exchange’s Board of
Directors whose members shall elected by the securities exchange subject to approval
of the Authority.

2) A member of the Board of Directors of a securities exchange shall at all times while
remaining in his/ her position be subject to the following conditions:
a) The member shall not have been convicted of a crime of breach of honour or
trust.
b) The member shall not have been declared bankrupt under a final judgment.
c) The member shall be of good reputation.
d) The member shall have sufficient experience in financial, economic, legal, or
related affairs.

3) The Board of a securities exchange shall ensure that the exchange is operated in
compliance with this proclamation, rules and regulations made in accordance with
this proclamation, and the exchange’s own rules and shall:—
a) be responsible for the general oversight of the affairs of the exchange;
b) oversee the administrative affairs of the exchange in order to ensure sound
financial management structures and processes.

4) The members of the Board of a securities exchange shall individually and collectively
be responsible for any non-compliance with the provisions of this proclamation, rules
and regulations made in accordance with this proclamation.

5) A securities exchange shall have an Executive Director or more appointed by the

Board of Directors of the exchange, and approved by the Authority.

6) The Executive Director of a securities exchange is entitled to manage the securities

exchange, and the Board of Directors of the exchange shall specify his/her authorities,
duties, and responsibilities.

7) It is prohibited to conjoin the position of the Chairman of the Board of Directors with
the position of the Executive Director of a securities exchange.

8) A person directly affected by the administration of a direction, decision, order or

ruling made, in accordance with a bylaw, rule, policy, procedure, practice or
interpretation of a securities exchange rule, may apply to the Tribunal for a
determination of the matter.

34. Rules of securities exchange

Subject to the approval of the Authority, a securities exchange shall make such rules or
procedures of the exchange as it considers necessary or desirable for the proper and
efficient regulation, operation, management and control of the exchange and the
securities market operated by the exchange.

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35. Responsibilities of a securities exchange

A securities exchange shall be responsible for:

(1) Ensuring the existence of a fair, transparent, and efficient securities exchange.

(2) Ensuring the existence of a management that is aware of the risks associated with its
business and operations.

(3) Prioritizing the public interest in case of a conflict of interest with the securities
exchange or its members, shareholders or management.

(4) Adhering to provide and operate its services in accordance with the rules and
regulations issued by the Authority.

(5) Adhering to organize its operations, standards of its practices and its members’
behaviours in accordance with the rules, policies and procedures of the securities
exchange.

(6) Adhering to organize the operations and standards of practices of the companies listed
therein and their employees in accordance with the governing regulations.

(7) Adhering to provide its services with up-to-date techniques and applications and
automated systems in line with the international standards approved or resolved by
the Authority.

(8) Maintaining the confidentiality of all information under its custody with respect to its
members and customers, unless it is required by the law or regulations to publish or
disclose such information. It shall not disclose such information except for the
Authority or by an order from the Authority or the court.

(9) Abiding by the Authority’s instructions.

36. Information sharing, reporting, and assistance to the Capital Markets

Authority

1) A securities exchange shall provide such assistance to the Authority as the Authority
may reasonably require for the performance of its functions and duties, including the
furnishing of such returns and information relating to its business or in respect of
dealings in securities or any other specified information as the Authority may require
for the proper administration of this proclamation.

2) A securities exchange shall inform the Authority immediately about the following
issues:
a) If found that one of its members cannot comply with any of the securities
exchange’s rules or its financial resources’ regulations.
b) If it deemed there is a financial irregularity or any other situation that may
indicate inappropriateness of the member or his incapacity to fulfill his
obligations.

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 c) Any disciplinary action is taken against any member, operator, or his
subordinates.

3) The management of an exchange shall inform the Authority of any disciplinary action
taken against any of its members, the details of the violation committed, and the
procedures taken and the penalty imposed. The Authority shall be provided with all
documents related to the subject.

37. Amendment to rules of a securities exchange

1) A securities exchange that wishes to make any amendment (whether by way of

rescission, alteration or addition) to its rules shall submit a draft of the proposed
amendment to the Authority for approval.

2) The Authority may, within twenty-eight days after receipt of a draft in accordance
with subsection (1), by notice to the exchange concerned disallow the amendment,
whereupon the amendment, if made, ceases to have force or effect.

3) If no such notice is given within twenty-eight days after the proposed amendment
was submitted to the Authority, the proposed amendment shall be deemed to have
been approved.

4) The Board of the Authority may request from a securities exchange to prepare
specific provisions within their scope of work or amend within a certain period. If the
securities exchange fails to abide by the request or to meet the request within the
specified period, the Authority may prepare the rules or amend them on behalf of the
securities exchange at the expense of the latter.

38. Use of certain titles

A person, other than a licensed securities exchange, who takes or uses, or has attached to,
or exhibited at, any place;

1) title “securities exchange” or “stock exchange”; or “derivatives exchange”;

2) any title which so closely resembles either of the titles specified in section (1) of this
Article as to be likely to deceive; commits an offence and shall be liable, on
conviction, to a fine proportional to the gravity of or severity of breach as determined
by the Authority. [penalty to be determined]

PART VI: SECURITIES DEPOSITORY AND CLEARING COMPANY

39. Definition

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For the purpose of this part, “securities” refer all securities excluding government securities
and commodities.

40. Licensing

1) The Authority shall license, regulate, and supervise a Security Depository and
Clearing Company (SDCC).

2) No Person shall incorporate SDCC or manage, or assist in incorporating or assist in

managing SDCC without obtaining license from the Authority.

3) An SDCC license may only be granted to a shareholding company whose capital shall
be determined by the Board of Directors of the Authority.

4) A securities exchange may offer securities depository, clearing, and settlement

services upon obtaining an SDCC license from the Authority.

5) The Authority may request whatever information or data deemed necessary from the
applicant company for a license.

6) The Authority shall specify the conditions required for granting a license and its
procedures in a Directive of the Authority.

41. Obligations of SDCC

A company licensed by the Authority as SDCC shall abide by the following obligations:

1) Arrange for fair and effective clearing and settlement in relation to any commercial
transactions of securities.

2) Manage risks associated with its activity and operation at the highest levels of
professionalism.

3) Prioritize to the public interest and that of those who deal with the company over the
company’s own interests.

4) Manage its services according to the related rules approved by the Authority.

5) Maintain confidentiality of all information and data under its possession, except what
is required by the Authority or the judicial authorities.

6) Provide its services with an up-to-date technology and automated systems in line with
the international standards accredited by the Authority or as requested or decided by
the Authority.

42. Reporting on members

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The SDCC shall inform the Authority at the earliest of the following:
1) If it found that any of its counterparty became unable to abide by any of the rules
applicable to operations of clearing, settlement and placement.

2) If it deemed that the financial position of counterparty and his/her ability to fulfil
his/her obligations has given signs of instability, or his/her ability to fulfil his/her
obligation has already become unstable.

43. Rules and Regulations

1) The Authority shall require the SDCC to prepare rules and regulations related to the
operations of clearing, settlement and registration of securities and other activities
that relate to the company’s business, or to amend the same within a certain period.

2) If the SDCC does not comply with the requirements within the specific period, the
Authority may prepare or amend the said rules on behalf of the SDCC and its
expenses shall be reimbursed by the SDCC.

3) No rules issued by the SDCC nor amendments thereto, either by withdrawal,

replacement or change, or addition thereof, shall be valid and effective unless they are
accredited by the Authority. The SDCC should provide the Authority with the reasons
and objectives for proposing such rules or amendments, and highlight the desired
effects; the Authority may resolve its approval, disapproval or amendment thereof
and inform the SDCC in writing of its resolution within at latest one week of the
resolution date.

4) In case of incompliance by any trader with the clearing rules, the SDCC may bind
that trader to pay the charges resulting from his/her incompliance.

44. Counterparty Risk

The Authority may issue instructions to the SDCC to ensure settlement of securities
transactions and maintain integrity of comprehensive risk management in securities
exchange. The Authority may, in particular, issue instructions concerning the settlement
of securities contracts, and make amendments to the contractual obligations that may
arise from the securities contract or any other matters deemed necessary by the Authority
to implement the provisions of the law.

45. Business Continuity and Disaster Recovery

1) In case of disaster, crises and disturbance, which may result in substantial effects in
the market, the Authority may issue instructions to amend or suspend any of the
SDCC’s rules.

32
2) If the SDCC fails to comply with the Authority’s resolutions or instructions issued
under its powers specified in the preceding Article, the Authority may take any
procedure deemed necessary to maintain the fair settlement and efficiency of the
commercial transactions of Securities or any category thereof.

46. Revocation of SDCC Licence

1) The Authority may, by a written notice, cancel the SDCC’s license according to the
provisions of this Law, as of the date specified in the Authority’s resolution in the
following cases:
a) If the SDCC lacks one of the conditions by which it was qualified to obtain a
license.
b) If the SDCC ceased to undertake the duties, which the SDCC is assigned to or
licensed for management thereof.
c) Liquidation of the SDCC.
d) Failure to fulfil any obligation required under this Law.
e) Failure to provide the information requested by the Authority or providing
incorrect or misleading information.
f) When the SDCCC makes any amendments to its objectives in its
Memorandum or Articles of Association without obtaining prior approval
from the Authority.
g) If the SDCC requested cancellation of its license.
h) The Authority shall publish the resolution of license cancellation and reasons
thereof in the Official Gazette.

2) The Authority may grant the SDCC a specific time extension, or extend the given
period after the date of license cancellation, if the Authority deems it necessary for
the public interest, or pursuant to the request of the SDCC to suspend its operations or
handover its activities to another licensed company.

47. Appeal

1) The SDCC may submit a grievance to the Authority against the resolution of
cancellation of its license within 15 days of the date on which it has been notified
thereof in writing or the date of publishing the resolution in the Official Gazette. The
Authority should decide on the grievance by a reasoned resolution within twenty days
of submission date.

2) If the SDCC is not satisfied by the decisions of the Authority, it may appeal to the
Tribunal for consideration of the matter.

48. Priority over ordinary debt

If a Person is subject to insolvency, bankruptcy, liquidation or appointment of a receiver

on his properties, the clearing and settlement procedures of the SDCC shall have priority
over any procedures or ordinary debts.

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PART VII: REGULATED CAPITAL MARKETS PRODUCTS AND
SERVICES

49. Regulated capital market products

Capital market products required to be regulated under this Proclamation shall include:
(1) Equities (stocks or shares issued or proposed to be issued by a corporation)
(2) Bonds
(3) Derivatives instruments
(4) Units in a collective investment scheme
(5) Real Estate Investment Trusts
(6) Contracts or arrangements under which one party agrees to exchange currency,
immediately, at an agreed rate of exchange with another party
(7) Capital market products consisting of two or more capital market products that are
linked together in a stapled manner such that any one of the linked capital market
products is not transferable and cannot be otherwise dealt with independent of the
remaining linked capital market products.
(8) Any other products declared to be capital market products for the purpose of this
proclamation and by the Authority’s directive.

50. Regulated capital markets activities and services

1) The following capital markets activities shall be regulated under this Proclamation:
a) buying, selling & dealing in capital markets products
b) investment advice
c) underwriting
d) fund management
e) real estate investment trust management
f) corporate finance advice relating to acquisitions, mergers, divestures,
combinations & other activities that involve buying, selling & exchanging
securities
g) custodial services
h) credit rating services
i) Any other activity deemed by the Authority as a regulated activity in its
jurisdiction

2) Regulated capital markets activities shall only be undertaken by the following persons
who hold a capital markets services (“CMS”) license for that activity:

a) Securities Broker or its representative

b) Investment Adviser or its representative
c) Investment Portfolio Manager
d) Collective Investment Scheme Manager
e) Investment Bank
f) Broker-Dealer
g) Custodian
h) Market Maker
i) Credit Rating Agency

34
 j) Any person who conducts or participates in any activity that is deemed by the
Authority to be an activity in securities to be regulated in accordance with the
purposes of this proclamation.

3) The CMS license is issued by the Authority to any person or corporation who satisfies
the fit and proper criteria.

4) A Person licensed to engage in regulated capital markets activities shall comply with
the rules and regulations of the Authority and in particular:

a) Separate commercial dealings in securities from any other commercial

activities.
b) Maintain adequate capital as determined by the Authority.
c) Ensure that clients’ funds or securities shall not be transferred for personal
use, nor be mismanaged.
d) Shall not incur excessive debt in order to obtain or hold securities.
e) Have reasonable justifications or grounds to believe that any securities
recommended to a client are appropriate for that client.
f) Never make promises to a client of certain return or guarantee to a client that
he/she shall not incur loss, unless the nature of the securities necessitates so.
g) Seek to achieve the best performance for the client’s benefit.
h) Shall not collect unreasonably high commissions or offer unduly high
discounts in transactions.
i) Shall not engage in excessive sale or purchase transactions in the client’s
account.
j) Shall provide clients with the documents and account statements related to
their transactions.
k) Prepare and maintain regular books and records.
l) Appoint one of its managers to be responsible for implementing legal
obligations.
m) Shall have written supervisory bylaws, rules and regulations to control its
operations including procedures to prevent the misuse of Insider Information,
as well as specific procedures to detect and prevent money laundering.

5) An individual who conducts a regulated activity for the holder of a CMS license is
required to be an appointed representative of the CMS.

6) A single legal Person may be licensed to perform two or more capital markets
activities and the rules of the Authority shall determine the terms and conditions for
granting such licenses, as well as the criteria for performing such activities.

7) No person may act as a representative of a licensee or claim that unless obtaining an

approval and a license from the Authority.

8) The Authority may request from Persons licensed to engage in capital market
activities to submit periodic reports on all their activities, including an annual report
of the audited financial statements. The Authority shall check and audit all of their
records; and it may take photocopies of these records or request from any of them to
submit copies thereof.

35
9) A capital market service provider shall carry out business solely on behalf of
Ethiopian citizens, foreign citizens of Ethiopian origin, or companies incorporated
under the Ethiopian law.

51. Fit and Proper Persons

1) For purposes of this Proclamation, in considering whether a person is a fit and proper
person, the Authority shall have regard to the:
a) Financial status;
b) Educational or other qualifications or experience with respect to the nature of
the application;
c) Ability to perform his proposed function efficiently, honestly and fairly; and,
d) Reputation, character, financial integrity and reliability of that person.

2) For the purposes of this Proclamation, the Authority may have regard to any
information in the possession of the Authority, whether furnished by the applicant or
not in considering the fit and proper requirement.

3) For the purpose of sub-article (1), the Authority may take into account any matter
relating to:
a) Any person who is or is to be employed by, or associated with, the applicant
for the purposes of the proposed business to which the application relates;
b) Any person who will be acting as a representative in relation to such business;
c) Where the applicant is a company, any substantial shareholder, director or
officer of the company, any other company in the same group of companies or
to any director or officer of any such company;
d) Where the applicant is a foreign company, a capital market service license
shall only be granted after ensuring that the company meets the minimum
requirements for foreign investors stipulated under Investment Proclamation
1180/2020.

4) A “substantial shareholder” in sub-article (3) means, in relation to a company, a

person who has an interest in shares in the company:
a) The nominal value of which is equal to or more than five percent (5%), or
such other percentage as the Authority may by notice in the directive
determine, of the issued share capital of the company; or
b) Which entitles the person to exercise or control the exercise of five percent
(5%) or such other percentage as the Authority may, by notice in the Gazette
determine, or more of the voting power at any general meeting of the
company.

52. Applications for licence

1) An application for a license shall be made to the Authority in the prescribed form and
shall be accompanied by the prescribed fee.

36
2) In the case of an application for renewal of a license, such application shall be made
not later than one month before the expiry of the license.

3) The Applicant may be required to supply the Authority with such further information,
in relation to the application, as the Authority considers necessary.

4) The Authority shall not refuse to grant or renew a license without first giving the
applicant or the holder of a license, an opportunity of being heard.

53. Granting licence

A CMS activity licence may be granted by the Authority to an individual taking into
account the “fit and proper persons” provisions stated in Article 51 subsection (1) to (3).

54. Refusal, revocation and suspension of licences

The Authority may decline or suspend or revoke a license, or restrict the activity of a
Person licensed to engage in regulated capital markets activities, or any Person related to
it, if it were given evidence that the person has done one of the following:

1) Commits a major fault, gives misleading information, or omits to mention a material

fact when applying for a license, or omits to mention any other information that
should be submitted to the Authority.

2) Fails to meet the standards applied under this Chapter or any other subsequent system
or rules and regulations issued accordingly.

3) Violates any provision, rule, regulation, or directives issued under this proclamation,
or under any law related to its activity, or a Securities law, or rule or bylaws of
another country.

4) Is negligent in monitoring one of his affiliates (subordinates) by failing to prevent

him/her from acting in a way which might be a violation of the provisions of this
proclamation or the rules and regulation of the Authority.

55. Rights of applicant

1) Where the Authority refuses an application for a license or the renewal of a license
under this Article, it shall notify the applicant in writing of that fact and shall include
in the notice a statement of the reasons for the refusal.

2) The Authority shall not:-

a) refuse to grant or renew a license under this Article;
b) attach conditions to, or vary the conditions attached to, such a license; or
c) revoke or suspend such a license;
unless it notifies the applicant or licensee of its intention to do so and affords him/her
an opportunity to show cause in writing why it should not do so.

37
56. Appeals

(1) Any person aggrieved by a decision of the Authority:-

a) to refuse to grant or renew a license;
b) to attach conditions to, or vary the conditions attached to, such a license; or
c) to cancel or suspend such a license,

may, within thirty days after the date of that decision, appeal to the Tribunal.

(2) The decision of the Authority is not stayed by the lodgment of an appeal.

57. Licensed Person’s accounts review

(1) Each licensed Person shall establish and maintain books, records, and detailed and
accurate accounts that reflect transactions or transfers of ownership of the assets
related to such licensed Person, according to the accounting standards approved by
the Authority.

(2) The licensed Person shall maintain the records, books and accounts for a period of not
less than five years from the day of preparation thereof, or until any dispute between
the licensed Person and a client is resolved, during which they should be available for
review if requested.

(3) These documents shall be subject to inspection and auditing at all times by the
Authority or whoever assigned by the Authority to do so.

(4) Every licensed Person must use an internal control system and abide by the
following;
a) Execute the operations according to general or special authorization obtained
from the a relevant department.
b) Independence of disposition of assets under general or special authorization from
the a relevant department.
c) Compare registered assets during appropriate periods of time and take the
necessary actions towards any material changes.
d) Record transactions to allow preparation of financial statements in accordance
with the standards adopted by the Authority or during the auditing of the
company’s registered assets.

(5) Every licensed Person shall appoint, within one month from obtaining the license, an
auditor approved by the Authority, provided that the said auditor shall not be a
manager, officer, employee, shareholder or partner of the licensed Person.

(6) The Authority shall be notified of the appointment of the said auditor within seven
days from the day of appointment, and shall also be notified within the same period of
the auditor’s resignation or the appointment of a replacement thereof.

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 PART VIII: CAPITAL MARKETS TRIBUNAL

58. Establishment of the Capital Markets Tribunal

The capital Markets Tribunal is hereby established to hear appeals against appealable
decisions of the Authority.

59. The Jurisdiction of the Tribunal

The Tribunal shall have jurisdiction to hear and determine —

1) appeals from decisions of the Authority or a person exercising the functions or

powers of the Authority;

2) proceedings relating to misconduct in the securities market; and

3) such other matters as may be specified in, or prescribed in terms of this proclamation
or any other law.

60. Appointment of Members to the Tribunal

1) The Prime Minister shall appoint five members to the Tribunal.

2) Members of the Tribunal shall have the following qualifications:

a) Chairperson and Vice chairperson, who shall be a person eligible to be
appointed as a Judge of the High Court;
b) Three other members with knowledge and experience in law, securities,
commerce, finance or accountancy.

3) A member of the Tribunal:

a) may be appointed as either a full-time or part-time member;
b) shall be appointed for an initial 3 years terms and shall be eligible for re-
appointment for a further one term;
c) shall hold office on such terms and conditions, including in relation to
remuneration and attendance fees, as determined by the Government.

61. Disqualification of the members of the Tribunal

A person shall not be appointed as a member of the Tribunal if he/she—

1) is declared bankrupt

2) is an employee of the Authority or persons licensed by the Authority

3) has been convicted of an offence under any law and sentenced to imprisonment for a
period exceeding six months without the option of a fine.

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62. Administration of the Tribunal

1) The Chairperson of the Tribunal shall be responsible for managing the administrative
affairs of the Tribunal.

2) The Tribunal shall have a Registrar and such other staff as the Chairperson
determines.

63. Finances

1) The budget of the Tribunal shall be allocated by the Government.

2) The Tribunal shall keep complete and accurate books of account.

3) The books of account and other financial documents of the Tribunal shall be audited
by the Auditor-General or by an auditor designated by the Auditor-General.

64. Annual Report of the Tribunal

1) The Chairperson of the Tribunal shall prepare a report of the affairs of the Tribunal
for each fiscal year.

2) A report under sub-article (1) of this Article for a fiscal year shall be submitted to the
Prime Minister within three months after the end of the fiscal year.

65. Filing of an Appeal

1) An appeal to the Tribunal shall be instituted by filing with the Registrar of the
Tribunal, a notice of appeal, accompanied with the prescribed fee, and by serving a
copy of the notice on the Authority, within twenty-eight days of the notification to, or
the service on, the respondent, or within such other time as may be required by the
rules prescribed by the president of the Supreme Court.

2) Notwithstanding subsection (1), an appeal may be instituted out of time if the Tribunal
is satisfied that there was a reasonable cause for not appealing within the time
prescribed and that the appeal was filed thereafter without unreasonable delay.

3) A notice of appeal shall specify the grounds of appeal and be in such form and
manner as may be prescribed by rules issued by the President of the Supreme Court.

4) If, on the hearing of an appeal, the appellant desires to bring in any ground of
appeal, which was not specified in the notice of appeal, and the omission of that
ground from the notice was, in the opinion of the Tribunal, not wilful or unreasonable,
the Tribunal shall not be precluded from allowing the appellant to bring in that
ground or take such ground into consideration.

5) The Authority shall, within seven days, after receiving a notice of appeal, forward to

40
 the Tribunal copies of all documents relevant to the decision appealed from.

66. Proceedings of the Tribunal

1) The Chairperson of the Tribunal shall serve as member of one of the panels of the
Tribunal.

2) The Chairperson of the Tribunal shall assign a member or members to the hearing of
an appeal as the Chairperson considers appropriate having regard to the issues
raised by the appeal.

3) The Federal Supreme Court may issue a Directive for the conduct of proceedings by
the Tribunal.

67. Decision of the Tribunal

1) The Tribunal shall hear and determine an appeal and make a decision as set out in
section 5 of this Article.

2) The Tribunal shall decide an appeal within 120 (One Hundred Twenty) days after the
notice of appeal was filed.

3) The President of the Tribunal may, by notice in writing to the parties to an appeal,
extend the period for deciding the appeal for a period not exceeding 60 (Sixty) days
having regard to the complexity of the issues in the case and the interests of justice.

4) A failure by the Tribunal to comply with section (2) or (3) of this Article shall not
affect the validity of a decision made by the Tribunal on the appeal.

5) The Tribunal may dispose of an appeal by;

a) confirming, varying or setting aside an original order, or decision and, where
the original order or decision is set aside, by substituting the original order or
decision as the Tribunal considers appropriate;
b) remitting the matter in question to the Tribunal with such directions as it
considers appropriate; or
c) making any other order which the Tribunal considers appropriate

6) The Tribunal shall serve a copy of the decision on an appeal on each party to the
appeal within 7 (seven) days of the making of the decision.

7) The Tribunal’s decision shall include the reasons for the decision and the findings on
material questions of fact, and reference to the evidence or other material on which
those findings were based.

8) The decision of the Tribunal on an appeal shall come into operation upon the giving
of the decision or on such other date as may be specified by the Tribunal in the
notice of the decision.

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 PART IX: PUBLICLY TRADED SECURITIES

68. Definition

1) For the purposes of this Part, securities of a public company shall be treated as being
publicly traded if-
a) the company had more than 50 (fifty) shareholders; or
b) the Authority, by notice in writing to the issuer, has declared that, after 90
(ninety) days, those securities would be treated as being publicly traded, and
90 (ninety) days has elapsed since that notice was given.

2) The provisions of this Chapter shall apply to the securities issued by companies
regardless of the forms or objectives of such securities.

69. Registration of securities

1) Any security issued for a public offer or private placement shall be registered, prior to
the offer or placement, as per the requirements of the Authority.

2) The issuer of a security or his/her representative must sign and file a statement of
registration, with the Authority, in the prescribed form relating to the security
together with the prescribed fee.

3) If however the security has not been registered, or is not guaranteed by the
Government or exempted, by directives made under this Proclamation, from the
requirements of this Part, the issuer of the security shall be guilty of an offence.
[penalty to be determined]

70. Prospectus for securities issued by companies

1) A person shall not issue or cause to be issued an advertisement for offering securities
to the public unless the issuer of such securities has submitted for approval to the
Authority, and the Authority has approved, a prospectus which complies with the
requirements of this Part.

2) No Person may offer any securities for an Initial Public Offering or Private Placement
without providing a prospectus consistent with the information and procedures set
forth in the rules and regulations of the Authority.

3) The prospectus shall be valid after 30 (thirty) days from the date of submission
thereof to the Authority supported by all required documents, information, and data
unless the Authority announces it is approval or rejection in writing prior to this date.
The period may be extended with the consent of the issuer of the securities.

42
4) The issuing entity shall make the prospectus available to the public free of charge at a
registered address in Ethiopia.

5) The Authority may refuse the prospectus in any of the following cases:
a) If the prospectus is not in accordance with the provisions of this proclamation
and any other rules and regulations issued by the Authority.
b) If the prospectus is submitted without any evidence of the payment of the
determined fees.
c) If the Issuer fails to submit the required financial statements according to this
proclamation or any regulations or rules issued by the Authority.
d) If the prospectus contains any inaccurate or incomplete statement that may
influence the decision of the subscriber.

71. Disclosure obligations

1) An issuer of securities that are the subject of a public offer, or which are publicly
held, shall inform the Authority, members of the issuer and other holders of its
securities as soon as reasonably practicable of any information relating to the issuer
and its subsidiaries, if any, that:
a) Is necessary to enable them and the public to appraise the financial position of
the issuer and of its subsidiaries;
b) Is necessary to avoid the establishment of a false market in its securities, or
might reasonably be expected materially to affect market activity in the price of
its securities.

2) A prospectus for the shares of a company – upon its incorporation – shall include
disclosures of the information in accordance with the requirements of this part.
a) A record of the company’s historical activities.
b) Names of the Board members, directors and officials and their respective
experience.
c) Names of the shareholders who each own more than 5% of the shares of the
company, together with the percentage of their ownership.
d) A summary of the financial statements and information approved by auditors
for the last three years or the period following the incorporation of the
company – whichever is shorter– as per the disclosure rules set forth by the
Authority.

3) Companies listed on a securities exchange shall disclose their financial statements in

accordance with the regulations issued by the securities exchange and approved by
the Authority.

4) The Authority may require the securities exchange to take all necessary actions to
urge listed companies to expedite the disclosure of any material changes that may
occur in any of these companies.

5) The public may, for a fee specified by the Authority, have access to or obtain copies
of periodic publications, reports, information and statements kept at a securities
exchange, which was announced or disclosed.

43
 6) Once registered securities are issued, the issuer must keep the public informed of all
matters which affect the value of the securities, immediately upon their becoming
known to the directors of the issuer, by placing an advertisement in a newspaper of
general circulation and by reports to the Authority and to any securities exchange on
which they are listed.

72. Trading of listed securities

(1) A person who deals in any listed, registered securities otherwise than through a
registered securities exchange shall be guilty of an offence. [penalty to be
determined]

(2) Any person who deals in any registered securities otherwise than through a licensed
dealer shall be guilty of an offence. [penalty to be determined]

73. Trading of unlisted securities

Unlisted securities shall not be traded through a registered securities exchange and any
person who deals in such unlisted securities and does not forthwith report that dealing to the
prescribed securities exchange shall be guilty of an offence. [penalty to be determined]

PART X: DISCLOSURE OF INTERESTS

74. Definition

For the purpose of this part, an “Interested Person” means any Person who has an interest
that represents 5% or more in the capital of a company listed on an Exchange, whether
directly, indirectly, or in alliance with others.

75. Submitted information

1) An Interested Person shall – within a period not exceeding 5 (five) business days
from acquiring the interest – send an authenticated and signed statement to the
Authority, the exchange where the securities are traded, and to the issuer of those
securities; and such statement shall contain the information specified by the rules and
regulations issued by the Authority.

2) Any shareholding company listed on an exchange shall disclose the names of the
shareholders who own 5% or more of its capital or any change of such percentage.
The rules and regulations issued by the Authority shall specify procedures and timing
for such disclosures.

76. Notification of changes

44
1) The Authority and the exchange on which securities are traded must be notified of
any changes in any interest – subject to disclosure – that exceeds more than 0.5% of
the issuer’s capital within a period not exceeding ten business days as of the date of
the change.

2) Such reporting remains mandatory when the change results in a decline of the interest
to below 5% of the capital.

77. Rules on “Insiders “and “Material Information”

1) The Authority shall issue rules and regulations to regulate the disclosure and dealing
in securities with regard to Insiders, as well as the Board of Directors members and
the members of the executive management of companies.

2) The Authority shall issue rules and regulations to regulate listed companies disclosure
of material information.

78. Register of Disclosure

1) Each listed shareholding company shall maintain a special register for the disclosure
of the members of the board of directors, executive directors and managers, which
involve all statements and information determined by the Authority, and shall include
all data related to remunerations, salaries, incentives and other financial benefits as
included in the report of the general assembly. Any stakeholder shall have the right to
access this register during regular working hours.

2) The exchange – in which a security is listed – shall announce the information

received concerning the disclosures of interests immediately upon receipt thereof as
specified by the rules and regulations issued by the Authority.

3) A Person under the obligation of disclosure shall be held liable for any damages
incurred by the Authority, the exchange or a third party as a result of a failure to
disclose the interest according to the provisions of this Proclamation and the rules and
regulations issued by the Authority.

PART XI: INSIDER TRADING

79. Inside information

(1) For the purposes of this Part “inside information” means information which:
a) relates to particular securities or to a particular issuer of securities and not to
securities generally or to issuers of securities generally;
b) is specific or precise;
c) has not been made public; and

45
 d) if it were made public would be likely to have a significant effect on the price
of any securities;
(2) Securities are “price-affected securities” in relation to inside information, if and only
if the information would, if made public, be likely to have a significant effect on the
price including the value of the securities.

80. Insider trading

(1) A person who has information as an insider commits the offence of insider trading if
that person:
a) Deals or trades in securities that are price-affected in relation to that information;
b) Encourages another person to deal in securities that are, whether or not that other
person knows, price-affected securities in relation to the information, knowing or
having reasonable cause to believe that the dealing would take place; or
c) Discloses the information, otherwise than in the proper performance of the
functions of his employment, office or profession, to another person.

(2) A person who commits an offence under sub-section (1) shall be liable on conviction
to a fine proportional to the gravity of or severity of breach as determined by the
Authority. [penalty to be determined]

(3) A court convicting a person under section (2) may make an order imposing on the
convicted person a penalty of an amount not exceeding 5 (five) times the amount of
any profit gained or loss avoided by any person as a result of the insider trading and
or dealing.

(4) A contract shall be void and unenforceable by reason of the commission of the
offence of insider trading under this Part.

81. Insiders

1) For the purposes of this Part, a person who has information is an insider if that person
knows that the information is inside information, or that person knows that it is inside
information from an inside source.

2) For the purposes of section (1), a person has information from an inside source if that
person has it through:
a) being a director, employee or shareholder of an issuer of securities; or
b) having access to the information by virtue of his or her employment, office or
profession; or
c) the direct or indirect source of the information falls under a person in paragraph
(a) and (b).

46
 82. Public Information

(1) For the purposes of this regulation, “made public” in relation to information, shall be
construed in accordance with the following provisions of this Part, but these
provisions are not exhaustive as to the meaning of that expression. Information is
made public if it:
a) is published in accordance with the directives of the Authority or a securities
exchange for the purpose of informing investors and their professional advisers;
b) is contained in records which by virtue of any enactment are open to inspection by
the public;
c) can be readily acquired by those likely to deal in any securities:
i. to which the information relates; or
ii. of an issuer to which the information relates; or,
d) is derived from information which has been made public.

(2) Information may be treated as made public even though it:

(a) can be acquired only by persons exercising diligence or expertise;
(b) is communicated to a section of the public and not to the public at large;
(c) can be acquired only by observation;
(d) is communicated only on payment of a fee; or
(e) is published only outside Ethiopia.

PART XII: IMPROPER TRADING PRACTICES

83. False trading, misleading statement and market manipulation

(1) A person shall not create or cause to be created, or do anything with the intention of
creating a false or misleading appearance:
a) of the volume of trading in any securities on any securities exchange in
Ethiopia; or
b) with respect to the market for, or the price of, any such securities.

(2) A person shall not by means of the purchase or sale of any securities that does not
involve a change in the beneficial ownership of those securities, or by any fictitious
transaction or device, maintain, inflate, depress or cause fluctuations in the market
price of, any securities.

(3) A purchase or sale of securities does not, for the purposes of sub-section (2), involve
a change in the beneficial ownership if a person who had an interest in the securities
before the purchase or sale, or a person associated with that person in relation to those
securities, holds an interest in the securities after the purchase or sale.

(4) A person shall not induce or attempt to induce another person to deal in securities by:
a) making or publishing any statement, promise or forecast that the person
knows to be misleading, false or deceptive,
b) the dishonest concealment of material facts; or

47
 c) recklessly or dishonestly making or publishing any statement, promise
forecast that is false or misleading.

(5) A person shall not effect, take part in arbitrage transactions, be concerned in or carry
out, either directly or indirectly, two or more transactions in securities of an issuer
being transactions that have, or are likely to have, the effect of:
a) raising the price of securities of the issuer on a securities exchange in
Ethiopia, with intent to induce other persons to purchase or subscribe for
securities of the issuer or of a related issuer;
b) lowering the price of securities of the issuer on a securities exchange in
Ethiopia, with intent to induce other persons to sell securities of the issuer or
of a related issuer;
c) maintaining or stabilizing the price of securities of the issuer on a securities
exchange in Ethiopia with intent to induce other persons to sell, purchase or
subscribe for securities of the issuer or of a related issuer.

84. Fraudulent transactions

A person shall not, directly or indirectly, in connection with any transaction with other
person involving the purchase, sale or exchange of securities:
(1) employ any device, scheme or artifice to defraud that other person; or
(2) engage in any act, practice or course of business which operates as a fraud or
deception, or is likely to operate as a fraud or deception, on that other person.

85. Restrictions on selling of securities

A person shall not sell securities which that person does not hold at, or through a
securities exchange, unless at the time that person sells them:
a) that person has or, where that person is selling as agent, the principal has; or
b) that person reasonably and honestly believes that he/she has or, where that person
is selling as agent, that the principal has,
a presently exercisable and unconditional right to vest the securities in the purchaser of
them.

86. Offence and penalties

1) A person who contravenes any of the provisions of this Part shall be guilty of an
offence. [penalty to be determined]

2) A person who is convicted of an offence under this Part, shall, in addition to criminal
liability for the offence, be liable, at the suit of any person who has sustained
pecuniary loss as a result of having purchased or sold securities at a price affected by
the act or transaction which comprises or is the subject of the offence, to an action for
damages in respect of the loss occurred.

48
 3) Nothing in this Part limits or diminishes any civil liability which any person may
incur under any other law.

PART XIII: ASSET BACKED SECURITIES

87. Interpretation

1) For the purposes of this Part “Asset Backed Securities (ABS, henceforth)” mean –
a) securities that are primarily serviced by the cash flows of a discrete pool of
receivables or other financial assets, either fixed or revolving, that by their terms
convert into cash within a finite period of time, plus any rights or other assets
designed to assure the servicing or timely distributions of proceeds to the security
holders; or
b) Any securities including promissory notes but do not include shares or
entitlements under a collective investment scheme; or
c) Any rights or interests, debentures or certificates evidencing the legal, equitable
or beneficial interest or entitlement of its holder to a share of the assets of a
special purpose vehicle or to entitlement to payment from such assets where
payments or distributions of capital, income, principal or interest to investors
accrue principally from the assets of the special purpose vehicle as a consequence
of the establishment or operation of a securitization transaction; or
d) Any other right, interest, instrument of security or class of securities prescribed to
be asset backed securities;

2) “Issuing Entity” means a passive special purpose entity that issues ABS to investors
that are either backed by or represent interests in the assets transferred to it.

3) “Servicer” means an entity responsible for the administrative, management, or

collection for the pool of assets, or for making allocations or distributions to holders
of the ABS. The Servicer is responsible for carrying out the functions involved in
administering the assets and calculates the amounts (net of fees) due to the ABS
investors, and is often an affiliate of the Arranger/Sponsor.

4) “Sponsor” means an entity that organizes and arranges a securitization transaction by

selling or transferring assets, either entirely or indirectly, including through an
affiliate, to the issuing entity. The assets are either originated by the sponsor, or are
purchased by the sponsor from the originators of the receivables, or in the secondary
market.

5) “Obligor” means any person having an obligation to make payment in relation to or

in connection with the assets sold, transferred or assigned to a special purpose vehicle
and may, where permitted by law, include persons having a future payment
obligation.

6) “Offer” in relation to asset backed securities, except where the context otherwise
requires, includes sales or transfers of asset backed securities by the originator but
shall not include the issue of asset backed securities to an originator or seller in
exchange for or consideration for the sale, transfer or assignment of assets to the
trustee for the purpose of establishing or maintaining the operation of the
securitization trust or in accordance with the transaction documents.

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7) “Offering memorandum” means any notice, circular, material, advertisement,
publication or other invitation offering for subscription or purchase of any asset
backed securities in restricted or limited restricted offers.

8) “Originator” means an entity who directly or indirectly originates assets into a

special purpose vehicle or arranges for the acquisition, sale, transfer or assignment of
the assets previously owned by that person to the special purpose vehicle and may,
where the context permits, include a seller of the assets;

9) “Securitization arranger” means a person, who is appointed by the trustee from

amongst persons who are not employees of the originator or seller or who are acting
solely in the capacity of a legal adviser or the auditor of the originator or the seller or
who sponsor or assists in-
a) the formation of a securitization trust;
b) the preparation of the structure of a securitisation transaction;
c) its financial or cash flow models; or
d) a prospectus or an offering memorandum in asset backed securities.

10) “Securitisation manager” means any person appointed by a trustee to assist in the
administration of assets, the management or operation of the securitisation
transaction.

11) “Securitisation transaction”: means a transaction which involves offer or issue of

asset backed securities to any investor other than a seller or originator and includes all
the ancillary, incidental or related arrangements which are entered into, in relation to,
or in connection with the-
a) sale;
b) transfer or assignment of assets;
c) appointment of a trustee;
d) establishment of a trust;
e) appointment of a servicer; or
f) entering into all or any arrangements;
necessary or desirable to provide any structural or credit support or manage risks or other
arrangements to operate or give effect to the securitization transaction or issue or offer of
asset backed securities;
12) “Securitization trust” means a trust settled, formed or established to act as a special
purpose vehicle for a securitization transaction.

13) “Special purpose vehicle” means a securitization trust established in accordance

with a trust deed subject to the laws under which asset backed securities are issued.

14) “Transaction document” means a trust deed and any other documents prescribed to
be transaction documents.

15) “Trustee” means a person appointed under the trust deed as a trustee of the
securitization trust and any successor.

16) “Credit Enhancement” refers to a risk-reduction technique that provides protection,

in the form of financial support, that allows securities backed by a pool of collateral

50
 (such as loans, mortgages or other receivables) to absorb losses from defaults on the
underlying loans.

88. Restriction on issues and offers of asset backed securities

1) A person shall not issue, offer for subscription purchase, or invite the subscription or
purchase of asset backed securities to the public or to restricted investors, except in
accordance with this Part or approval by the Authority.

2) A person shall not act as an originator, seller, issuer, securitization arranger,

transaction adviser, trustee, securitization manager or servicer of asset backed
securities except in accordance with this Part or license from the Authority.

3) A person shall not act as an agent in the sale or purchase of asset backed securities
unless that person is a regulated person by the Authority and complies with the
requirements of this Proclamation or Directives issued by the Authority.

4) A person shall not issue or offer any asset backed security other than to a seller or an
originator of the asset backed security.

5) A person shall not issue an asset backed security unless it is made in accordance with
a prospectus or an offering memorandum.

6) The Authority may prescribe the contents of a prospectus or offering memorandum

taking into consideration on the classification of the issue or offer and the nature of
the assets backing the securities or such other factors that the Authority may consider
appropriate.

7) Where a limited restricted offer is made, the issuer shall file an information notice
with the Authority.

8) For the purposes of this Part, a person offers asset backed securities if that person
invites another person to enter into an agreement with the view to subscribing for or
otherwise acquiring or underwriting any asset backed securities, or if he invites
another person to make such an offer.

9) A person who contravenes any provisions of this section commits an offence and
shall be liable on conviction to a fine proportional to the gravity of or severity of the
breach as determined by the Authority. [penalty to be determined]

89. Forms of asset backed securities to be offered

1) Asset backed securities issued or offered under this Part shall consist of beneficial
entitlements to a unit, participation, share of or interest in the assets of the trust
established as a special purpose vehicle for undertaking a securitization transaction
and issuing asset backed securities to investors who shall be beneficiaries of the trust.

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2) A person may issue or offer different classes or tranches of asset backed securities
reflecting beneficial entitlements with differing rights including, priorities of
payments from the income or capital of the trust or distribution of assets or voting
entitlements and provision may be made for a beneficiary to be entitled to a residual
interest.

90. Nature of asset to be sold, transferred or assigned

Assets which may be originated into a securitization trust or sold, transferred or assigned
to the trust shall –
a) generate or result in a cash flow;
b) not be encumbered to a third party at the time at which an issue or offer of asset
backed securities is made;
c) be capable of being legally originated, sold, transferred or assigned; and
d) Comply with any requirements imposed under this Part.

91. Origination of asset for sale, transfer or assignment

1) Subject to such requirements that may be imposed by the Authority, all securitization
transactions shall involve either one or a combination of –
a) the direct origination of the assets into the securitization trust, or
b) the sale, transfer or assignment of the assets to the trustee to be held under the
terms of the securitization trust in a manner which constitutes a true sale
according to the pertinent laws in relation to the particular type of asset, the
laws governing the transaction or the jurisdiction or location of the assets.

2) Assets may be transferred to a securitization trust by more than one seller or

originator, provided that-
a) the sale, transfer or assignment of the asset is recognized as such by the
relevant law or law governing the transaction, and

b) in such case, it shall not be necessary in order to achieve a true sale and to
satisfy the requirements of this Part, that off balance sheet treatment is
achieved under the accounting rules by the originator or the seller or that
capital relief be provided by any other regulator.

3) The sale, transfer or assignment in relation to a specific asset or a specific

securitisation transaction under subsection (1) shall, subject to such conditions as the
Authority may impose, be a legal and not an equitable sale, transfer or assignment of
the asset or assets.

4) Failure to achieve a true sale shall not as a consequence of the operation of this Part
operate to invalidate the sale, transfer or assignment, the issue or offer of asset backed
securities or otherwise adversely affect the rights of the investors in asset backed
securities.

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92. Trustees

1) The Authority may, from time to time, prescribe the qualifications of a person to be
appointed as a trustee.

2) A trustee shall -
a) be the custodian of the assets of a securitisation trust;
b) manage the operation of the securitisation trust and the securitisation
transaction in a fiduciary capacity.

3) All assets of the securitisation trusts shall be held by the trustee in trust for the
investors in asset backed securities as the beneficiaries of the securitisation trust.

4) Except as specifically provided for in the trust deed, and to the extent that the trust
deed relates to the implementation and operation of the securitisation trust and
securitisation transaction, the preservation of assets and fulfilment by the trustee of its
fiduciary obligations, the assets of a securitisation trust shall not be available to-
a) the trustee;
b) any creditors of the trustee;
c) any other claimants against the trustee; or
d) satisfy any liabilities of the trustee.

5) The assets of a securitisation trust shall not be included in the assets of trustee in the
event the trustee is declared insolvent, wound up, placed under administration,
dissolved, amalgamated or restructured.

6) A trust deed shall contain such information, including the roles and duties of a trustee,
as the Authority may prescribe.

7) A trustee shall, in addition to such other duties and obligations as may be imposed on
it under any other written law, perform such other roles and duties as the Authority
may prescribe.

93. Appointment of securitization manager

1) A trustee may appoint a securitisation manager in such manner as may be provided

for in the transaction documentation.

2) A securitization manager shall assist the trustee with the operation and management
of the securitisation transaction and assets.

3) A securitisation manager shall not operate to reduce or alleviate any obligor, seller,
servicer or trustee of any of its obligations under the trust deed, the transaction
documentation, this Part or any other pertinent law.

4) A trustee shall, notwithstanding any delegation to a securitisation manager of its

duties, be liable for any action or omission by the securitization manager.

5) The Authority may prescribe requirements in relation to a securitisation manager.

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94. Appointment of securitization arranger

1) A trustee may appoint a securitisation arranger in accordance with the transaction

documentation.

2) An issuer shall, where a trustee has not appointed a securitisation arranger, be liable
to investors in the asset backed securities for-
a) all matters relating to the structure, conduct of due diligence, cash flow and
financial modelling; and
b) any information in the prospectus or an offering memorandum.

95. Servicers, alternative servicers and successor servicers

1) The Authority may prescribe the eligibility requirements for servicers, alternative
servicers and successor servicers.

2) Subject to the provisions of this Part, a seller or an originator may be appointed to act
as a servicer.

3) Where-
a) the trustee does not appoint a servicer; or
b) the servicer retires or has been removed,
the trustee or securitisation manager appointed by the trustee shall carry out the functions
of the servicer until another servicer is appointed.
4) The servicer shall-
a) in addition to any contractual obligations which the servicer may have under
the transaction documents, in conducting its role, owe a fiduciary duty to the
trustee and the investors in the asset backed securities as beneficiaries of the
securitisation trust; and
b) provide access to obligor files, and other documents, records data, systems,
software, documentation and personnel information that the trustee or any
auditor may require to fulfill its obligations under the securitisation trust
transaction.

96. The prospectus, offering memorandum or information notice

1) A prospectus or an offering memorandum and information notice of an asset backed

security shall;
a) contain such information as investors and their professional advisers may
reasonably require to make an informed assessment of the securitisation
transaction, the cash flow and the risk associated with investing in an asset
backed securities; and
b) comply with any other requirements, as the Authority may impose.

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2) The Authority may approve a prospectus if the prospectus contains the information
required under this Proclamation, and provided that the approval of the prospectus
shall not operate to waive, relieve or reduce any obligation by any party to make a
disclosure or provide any defence to any action under this Part or under any other
law.

3) The Authority may prescribe the form and content of an information notice under
subsection (1).

97. Secondary sales or transfer of asset backed securities

A secondary sale or transfer of an asset backed security shall comply with the
requirements of this Part and such other requirements as the Authority may impose.

98. Obligation to conduct due diligence

1) An issuer, an originator, a seller, a securitisation arranger, a transaction adviser or any

party involved in or connected with the issue or offer or named as an expert in the
prospectus or offering memorandum shall conduct an independent verification and
due diligence in respect of the assets, the issue of asset backed securities, all
statements included in the prospectus or offering memorandum and the presentations
and warranties included in any transaction document.

2) A person shall not be held liable for a statement in or omission from a prospectus or
offering memorandum or in respect of a representation or warranty in a transaction
document if that person proves that prior to making such statement, omission,
representation or warranty that person–
a) made such inquiries that were reasonable in the circumstances; and
b) believed on reasonable grounds that the statement, representation, warranty or
omission was not misleading, deceptive or material.

3) A credit rating agency shall include, prominently in any credit rating report issued in
respect of asset backed securities, details of due diligence or verification of facts,
data, assumptions or other information or statements, if any, that the credit rating
agency has undertaken.

4) Due diligence or verification under this section shall be carried out in such manner as
the Authority may prescribe.

99. Rating requirement and obligations of credit rating agencies

1) A trustee shall, where a rating under this Part is required, ensure that a rating is
obtained and maintained.

2) A trustee shall, if a rating is obtained, provide the rating agency with the necessary
information for the purposes of maintaining the rating.

55
3) An auditor, a servicer, a securitisation manager or any other party to the securitisation
transaction shall provide information to the trustee which is necessary to enable the
trustee to fulfil its obligations.

4) A credit rating agency shall comply with any requirements prescribed by the
Authority in relation to asset backed securities.

5) A person who contravenes this section commits an offence and shall be liable on
conviction to a fine proportional to the gravity of or severity of the breach as
determined by the Authority. [penalty to be determined]

100. General disclosure obligations

1) A servicer and a trustee or any other specified person in a securitisation trust shall,
whether the asset backed securities are listed or not, comply with the disclosure
requirements and any further obligations and requirements as may be prescribed by
the Authority.

2) The continuing disclosure obligations imposed under this Part, and any other
obligations imposed by the Authority shall apply to the servicer, trustee or any other
specified person under subsection (1) in addition to any requirements provided for in
the transaction documents or the requirements of any listing entity.

101. A summary of transferred assets

1) A trustee shall, irrespective of the classification of the issue or offer of asset backed
securities, within 7 (seven) working days of the issue or offer of asset backed
securities to a person other than a seller or an originator, or the sale, transfer or
assignment of assets to a securitisation trust, file with the Authority –
a) a summary of the assets transferred which discloses the nature and the number
of assets transferred;
b) details of the consideration for sale, transfer or assignment;
c) details of the nature of the sale, transfer or assignment, and
d) such other information as the Authority may prescribe.

2) A filing made under subsection (1) shall not operate to affect the sale, transfer or
assignment of assets.

102. Securitization requirements

The Authority may issue directives, rules and regulations on products and activities
related to securitization and asset backed securities for the better carrying out of the
provisions of this Part.

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PART XIII: ACQUISITION AND PROTECTION OF MINORITY
INTERESTS

103. Description

1) For the purpose of this part, the acquisition offer means the offer, or solicitation to
offer, or request to own:
a) All shares of a listed company or all shares of any class(s) in a listed company,
other than the shares owned by the offeror, or its subsidiaries or affiliates on the
offer submission date.
b) All of the remaining shares in the offeree company, and which are offered to all
the other shareholders in that company as a result of the acquisition of the offeror
and its subsidiaries and affiliates of a majority share in the company, which
enables it to control the Board of Directors.

2) The Authority shall issue a directive determining the required majority percentage to
apply the provisions of this Article.

104. Acquisition Offer

1) A person shall not make or pursue an offer in respect of a takeover or substantial

acquisition of the securities of any company except in accordance with the conditions
prescribed by the directives made under this Proclamation.

2) The Person, wishing to submit an acquisition offer, shall submit copies of the offer
documents, along with the relevant information to the Authority, securities exchange,
and the issuer of the securities subject to the acquisition offer. The offeror shall obtain
the Authority’s approval before taking any further steps in the acquisition process.

3) The Authority shall, within a maximum period of ten days, review the application and
offer documents and issue its approval. It shall refrain to issue its approvals in the
following situations;
a) The offer does not comply with the provisions of this Proclamation and related
directives issued by the Authority.
b) The application fees are not included in the offer.
c) The offeror fails to submit the necessary documents in accordance with the
provisions of this Proclamation and related directives issued by the Authority.
d) The offer includes incorrect or incomplete statement, which shall have an
influence on the decision of the shareholders of the company.

4) The Authority shall include in the directives & rules that regulate the operations of a
Persons’ ownership of a percentage not more than 30% of the shares of any listed
company in a securities exchange.

5) Any shareholders referred to in the previous paragraph may challenge the decisions of
the General Assembly, if such decisions harm the interests of the minority. They may
also appeal to the Board of Directors of the company within fifteen days from the
date of issuing the challenged decision or knowledge whereof, which is further. The

57
 Authority may revoke the decision of the General Assembly if proved harmful; and
each party of interest may file an appeal against the decision of the Authority to the
Tribunal.

6) A Person who acquires directly or indirectly more than 30% of the securities admitted
to trading of a listed shareholding company shall within 30 (thirty) days from the date
of acquisition submit an offer to purchase all the remaining shares traded in the
exchange as per the conditions set by the directives of the Authority.

7) The following cases shall be exempted from this provision:

a) Acquisition in consideration of the public interest and in the interest of the
remaining shareholders. Any such exemption decision issued by the Authority
shall be written and reasoned.
b) Gaining the stated percentage when the company increases its capital and some
shareholders refrain from subscription.
c) Obtaining the stated percentage because of debt restructure.
d) Gaining the stated percentage because of an inheritance, a will or a judicial ruling.
In such case, the Person shall regularize its situation within not more than two
years as from the increase.
e) Such other cases as provided for in the rules and regulations issued by the
Authority.

8) An issuer whose securities are the subject of an acquisition shall, within 7 (seven)
business days from receipt of the offer, submit a response to the Authority stating its
opinion and recommendations to the shareholders.

PART XIV: COMPENSATION FUND

105. Establishment of a Compensation Fund

(1) There shall be established a Fund to be known as the Investor Compensation Fund for
the purposes of granting compensation to investors who suffer pecuniary loss
resulting from the failure of a licensed capital markets service provide, to meet his/her
contractual obligations and paying beneficiaries from collected unclaimed dividends
when they resurface.

(2) Where the Authority is satisfied that adequate arrangements, other than those required
under section (1) for the protection of investors exist, the Authority may exempt a
securities exchange from the requirements of that section.

(3) The Compensation Fund shall consist of: -

a) such moneys as are required to be paid into the Compensation Fund by
licensed persons;
b) such sums of money as are paid under this Proclamation as fines or penalties
or as ill-gotten gains where those harmed are not specifically identifiable;
c) such sums of money as accrue from interest and profits from investing
Compensation Fund moneys;

58
 d) such sums of money recovered by or on behalf of the Authority from entities
whose failure to meet their obligations to investors result in payments from the
Compensation Fund;
e) interest deemed to accrue on the proceeds of a public issue or offer for sale of
shares of a company listed or to be listed on an approved securities exchange,
between the closing date and the date of dispatch of refund cheques, or where
there is no refund, the date of dispatch of share certificates or crediting of
securities accounts, to be determined at the rate prescribed by the Authority;
f) such sums of money as are received for purposes of the Compensation Fund
from any other source approved by the Government.
(4) The Authority may reward any person who provides new and timely information
leading to the recovery of sums of money referred to in section (3), provided that: –
a) this provision shall not apply to any officer of the Authority;
b) the reward payable under this section shall be three per cent of the amount
recovered subject to a maximum of five million birr; and
c) the reward referred to in paragraph (b) shall be paid before the recovered sums
of money are transferred to the Fund.
(5) The Authority shall make directives to give effect to the provisions of section (4) such
that a person who: –
a) colludes with an officer of the Authority for the purpose of collecting the
reward under subsection (3); or
b) while working at the Authority aids another person to get and provide
information under subsection (3); or
c) provides false information under subsection (3),
commits an offence and shall on conviction be liable to a fine proportional to the gravity
of or severity of breach as determined by the Authority. [penalty to be determined]
(6) Moneys which have accumulated in the Compensation Fund may be invested by the
Authority.

106. Directives of the Fund

The Authority may issue directives as to the:

a) Moneys constituting the fund;

b) Accounts to be maintained by the fund;
c) Administration of the fund and powers of the market committee administering the
fund;
d) Minimum amount to be kept in the fund and provisions if the fund is reduced below
the minimum amount;
e) Levies that may be imposed to meet liabilities of the fund;
f) The power of a securities exchange to make advances to the fund;
g) Investment of moneys of the fund;
h) Manner of lodging claims against the fund;
i) Any other matter incidental to the establishment and maintenance of the fund.

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 107. Sources of the fund

The main sources of funding shall be:-

a) all moneys paid to or deposited into it by any licensed capital markets service
provider;
b) all moneys recovered by or on behalf of the Authority by the exercise of any right
of action conferred by this Proclamation; and,
c) all other moneys accruing to the fund.

108. Purpose of fund

(1) The fund is set for the purpose of compensating persons who suffer pecuniary loss
occasioned by any default of a licensed capital markets service provider, or any
employee of such service provider, in the course of or in connection with any
dealing in securities, being a loss in relation to any money, securities or other
property which, in the course of or in connection with the business of any such
licensee, was entrusted to or received by the licensee or any such employee for and
on the person's behalf.

(2) The compensation fund shall be held and applied on such terms and conditions as
the Authority may by directives determine.

109. Disbursements from the fund

(1) The contributions to, and payments out of the fund shall be made in accordance
with the Directives prescribed by the Authority.

(2) Any disbursement from the compensation fund that is accountable to the default of
any licensed person is a debt due to the fund and is recoverable at the suit of the
Authority in any court of competent jurisdiction.

110. Management of the fund

The Authority may make Directives prescribing all such matters and things as are
necessary or expedient to be prescribed for or with respect to the administration,
management and application of any compensation fund established under this Part.

111. Assets of the fund

The assets of the fund shall be the property of the Authority but shall be kept separate from
all other properties and shall be kept in trust for the purposes set out in this Part.

112. Liability of fund to be limited

The Authority may limit the payment from the compensation fund, in respect of each
licensee in default, to such amount as the Authority may by directive provide.

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 113. Recovery of disbursements from defaulters

Any disbursement from the compensation fund that is accountable to the default of any
licensed person is a debt due to the fund and is recoverable at the suit of the Authority in
any court of competent jurisdiction.

Part XV: COLLECTIVE INVESTMENT SCHEMES

114. Description

(1) A Collective Investment Scheme may exist in any of the following forms:
a) Investment fund which is a corporate entity.
b) Contractual Collective Investment Scheme related to movable or immovable assets
intended to enable participants to participate in or gain from the profits accrued by
acquisition, or ownership, or management, or disposition of such assets.
c) Any other such mechanism the Authority decides to include as a Collective
Investment Scheme.

(2) The Authority shall set rules for regulating Collective Investment Schemes, taking into
consideration the provisions of this Part.
(3) Securities or units pertaining to a Collective Investment Scheme shall not be managed or
sold unless the Scheme has been licensed by the Authority according to its directives,
rules, and regulations and the issuance of the license has been announced to the public in
the Official Gazette.

(4) Participants are entitled to redeem their units from a Collective Investment Scheme in
accordance with the Articles of Association or Contract.

115. Registration of collective investment schemes

(1) An application for the registration of a collective investment scheme shall be made to
the Authority in the prescribed form and manner and shall be accompanied by:—
a) a copy of the scheme’s trust deed;
b) a copy of any prospectus or advertisement issued or proposed to be issued in
respect of the scheme;
c) the prescribed fee, if any; and
d) such other documents and information as may be prescribed or as the Authority
may reasonably require.

(2) If, after considering an application in terms of section (1), the Authority is satisfied
the Authority shall register the scheme as an internal scheme, an external scheme or a
professional scheme, as the case may be, and shall notify the applicant in writing
accordingly.

(3) The Authority shall issue the rules and regulations on issuance and redemption of
investment units in such Schemes, and their pricing controls.

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 116. Investment advisor of a collective investment scheme

Any person acting as an advisor for a Collective Investment Scheme shall comply with
the following:
a) Be licensed by the Authority to act as an Investment Advisor.
b) Act in the conformity with the regulations and procedures governing the
Collective Investment Scheme, which aims to achieve the unit holders’
interests.
c) Exert reasonable care of the person that is protecting his/her own property
when offering investment advices.
d) Maintain regular records according to the accounting systems related to the
Collective Investment Schemes.
e) Submit periodic reports to the Authority, as requested and in accordance with
its issued regulations.

117. Restrictions on collective investment schemes

(1) The Collective Investment Scheme is prohibited from carrying out the following:
a) Grant credit.
b) Purchase any securities issued by the company managing the Scheme or any of
its subsidiaries, except to the extent of the rules established by the Authority in
this regard.
c) Purchase any securities of the entity, where the Scheme’s manager is acting as
the subscription manager or sales agent, except to the extent of the rules
established by the Authority in this regard.

(2) A manager or Custodian of a Collective Investment Scheme may not be replaced

unless upon approval from the Authority; and the Authority shall notify an applicant
for such a change of its reasoned decision within 30 (thirty) days from the date of
receipt of the request. The bylaws shall specify the procedures required in this regard.

Part XVI: MISCLLANEOUS

118. Immunity of the Authority

No action or other legal proceedings shall be against the Authority or any officer or
employee of the Authority or any person, including the stock exchange, acting under the
direction of the Authority for any act done or purported to be done in good faith in the
performance, or intended performance of any duty, or in the exercise of any power under this
proclamation or the regulations made thereunder.

119. Repeal –

No proclamation on Securities existed, hence nothing to repeal.

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 120. Repeal of Inconsistent Provisions in other Proclamations and Directives

No Proclamation, directive, rule, law, or practice, if inconsistent with the provisions of this
Proclamation, shall be applicable with respect to matters provided for by this Proclamation,
and any such Proclamations, Directives, or provisions contained therein are hereby repealed
and are of no force and effect.

121. Effective date

This proclamation shall enter into force on the date of its publication in the Federal Negarit
Gazette.

Done at Addis Ababa, this […th ] day of [Month] 2020

SAHLEWORK ZEWUDIE

PRESIDENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

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