OVERVIEW OF MARKET SUPERVISION

Directorate of Market Supervision and Investigation

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 Contents

1. Introduction
2. Regulatory framework for market supervision
3. Who are being regulated by CMSA
4. Objective of Market Supervision
5. Supervision tool
6. Supervision of exchanges
7. Supervision of listed companies
8. Supervision of market players
9. Compliance and non compliance with market supervision guiding laws
10. Challenges facing securities market supervision
11. Conclusion Cliance
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 Brokers’ →Licensed by CMSA → DLAE/Primary
Brokers Business Market
 
Others include: -exchange

-Fund manager
A Coy Application to CMSA and DRPP/Primary
CMSA approve IPO (Prospectors) Market
  -custodian, CSDR
  -Brokers sell
shares
-Banks sell shares
-Mobile phone
DRPP/Brokers/
Money is collected by selling shares Banks/ Primary
  Market

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Use of Proceeds → According to
approval by CMSA DMSI/Primary Market
 

DMSI/CSDR/Share
Securities Deposition
register/Secondary Market

Listing of Shares at the DSE DMSI/price and quantity of

shares/Secondary Market
 

Trading of shares - Nicol Case

DMSI and demand of
- Voda Case
shares/Secondary Market
 

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Shares are trading
DMSI/Onsite and Offsite
Listed Company is doing business
Monitoring/Secondary
Profit/Loss
Market
 

Reporting
Reporting by
by Brokers,
Brokers, listed
listed company
company
DSE,
DSE, CSDR
CSDR DMSI Review of
Reports and
DSE
DSE Report
Report recommend
CSDR
CSDR Report
Report
Brokers accordingly/ Secondary
Brokers Report
Report
Listed
Listed Companies
Companies Market

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 1.0Introduction

The Securities Market Supervision is one of the functions of CMSA.

CMSA through the directorate of Market supervision is responsible
for overall supervision of capital market industry in Tanzania.

The functions of the directorate among others, includes:-

1. Markets surveillance to ensure orderly, fair and transparent
dealing in securities;
2. Onsite and offsite inspection of Licensed Dealing Members,
Custodians, Collective Investment Schemes, Investment Advisers
and Fund Managers;
3. Analysis of Financial and others reports of dealers, investment
advisors and exchanges 6
 2.0 The regulatory framework for
market
supervision
CMSA’s supervision of capital market is based on :-
• The Capital Markets and Securities Act (Cap. 79); and its
Regulations
• The Companies Act (Cap. 212);
• The DSE Rules, 2016.
• IOSCO Objectives and Principles of Securities market
regulation (international Standards/benchmarks)
• Specific company policies ; Approved Investment policy – for
Collective Investment Scheme

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 3.0 Who are being regulated by CMSA
CMSA is responsible to supervise the following market players :-
• Stock and Commodities Exchanges approved by CMSA as per CMS Act,
1994; the Dar es Salaam Stock Exchange and Tanzania Mercantile
Exchange;
• CSD s approved by CMSA as per CMS Act, 1994 ; the Central Securities
Depository and Registrar
• Dealers and Brokers;
• Issuer of Securities – Equity and Bonds;
• Bond Traders;
• Nominated Advisers;
• Collective Investment Scheme operators (Unit trust, REITS)
• Custodians of securities;
• Fund managers and Investment Advisers.
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4.0 The Objectives of Market Supervision

The objectives of market supervision are:-

1. Investor protection;
2. Fair, efficient and transparent organized markets
3. Disclosure requirements, rules and guidelines.
4. Reduction of systematic risk;
5. risk that affects an entire financial market or
system,
6. Safe and efficient capital market infrastructure;
7. Transparent and fair-dealing intermediaries; and
8. Well-informed and empowered
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issuers and investors.
 5.0 Market Supervision Tools

a) Regulatory tools such as CMS Act, Regulations, Circulars

and Guidelines; DSE Rules, Companies Act e.t.c);
b) CMSA Supervision Manuals and checklists
c) Automated Supervision Systems such as surveillance system
d) Market intelligence and information provided by market
participants, the media, internet and complaint from the
public (whistle blowers)

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6.0 SUPERVISION OF EXCHANGES ….

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6.0 SUPERVISION OF EXCHANGES ….

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 6.0 SUPERVISION OF EXCHANGES
 Supervision of Exchanges can be onsite and offsite. The offsite supervision is
conducted through Surveillance, review of periodic reports, media scanning,
information from whistle blowers and complainants, information from other
regulators e.t.c.
 On-site inspections involves;
i. Compliance with the CMS Act, Rules, Regulations, and
Guidelines
ii. Effectiveness of Internal control systems.
iii. Management Efficiency including Prudential review
 Surveillance is the process of monitoring and inspecting market activity to spot
strange/unusual trading patterns or market conditions that may indicate
violations of rules and regulations.
 Is a pre –emptive measure aimed at detecting and deterring potential market
abuse and avoiding disruptions to the market from anomalous trading activities,
including price manipulation and insider trading.
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6.0 SUPERVISION OF EXCHANGES ….

 Surveillance helps to ensure orderly markets, where buyers and

sellers are willing to participate because they feel confident in the
fairness and accuracy of transactions;

 Automated surveillance system ; analyze trading patterns and are

installed alerts management system, Cross activities
monitoring/various stock exchanges and market segment;

 Real-time market data surveillance is essential for market integrity

and to ensure fair trading and a transparent market environment

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6.0 KEY FEATURES ….
Alert Management

Case Management

Market Replay

Real-time Monitoring

Charting

Reports

Analytics

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 Case Management
.
Interactive GUI to Initiate Inquiries and Cases

Maintaining Case’s History Attributes

 
 

Built-In Work flows for Case Tracking and

Assignment
 

Emailing Inquiry notices to Brokers and Investors

Facility to attach multiple file types

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Market Replay
Multiple filters like Instruments, Members, Investors, Counter Parties &
Trade types etc.

Graphical representation is provided with color logic to enable the user

to view Trade, Announcements. A special indicator for alerts has been
provided

A tool for conflict resolution with visual drill down; can be selected
with suitable and wide choice of Break Points to replay the market

Control navigations through pause/play and replay speed

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Real-Time Monitoring
6.0 KEY FEATURES ….
 

Watch Lists: Open, High/Low, Offer/Bid, Volume, Sector, Symbol, Change ..

 
 
 
 
 
 

Transactions: Date Time, Symbol, Volume, Price, Terminal Id, Market etc.
 
 
 
 
 
 

Orders: Symbol, Date Time, Price, Type, Terminal, Member Id, Client Code
 
 
 
 
 
 

Other Parameters: Corporate Alerts, Cases, Announcements, and Indices

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Market Abuse Detection
Circular Cornering Insider
Trades Trading
Two or multiple
A pattern of Brokers inflating Trading based on
fictitious trades significant news
to manipulate the price of a
about any security
the market by a security by
ahead of its
group of Brokers purchasing large release to the
with ultimate amount of other market
zero security security participants
settlement
obligation

Short Selling Wash Front

Selling without any Trades Running
underlying holding Attempt to
or arrangement of Taking undue
create an
stocks with intention advantage of
impression of
to buy at lower price executing
liquidity through
afterward to create proprietary
buying and selling
zero settlement trades before
from the singe
obligation the execution
Broker at same
of large order
price level
of customer

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Post Trade & Order Analysis
Incorporates a comprehensive Post Trade & Post Order Analysis and Charting
Engine. It provides charts for Member and Security related post trade analysis.
These charts are highly configurable and provide a variety of filters to enable
the user to view data from various perspectives

Peer Comparison, Entity Profiling – entities being Members, Clients &

Instruments - and Concentration Analysis are at the core of the Post Order and
Post Trade Analysis

Trades and Orders can be analyzed and cross referenced, using tabular as well
as graphical formats, on a wide range of filters – Exchange, Segment, and
Instrument filters

The Post Trade and Post Order Analysis allows for an extensive drill-down
facility, thus making it possible to capture the end client/ counter-client
potentially responsible for the unusual patterns

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6.0 Typical Reports
KEY
DailyFEATURES ….
End of Day Report based on volume, high, low, closing and opening prices
 
Daily Corporate Announcements coupled with Corporate News Stories
 
Daily Report on Trades at ‘Abnormal’ Prices
 
Daily Report on High Quantity Trades
 
Daily Price Band Hits by member
 
Daily Report of index movement, active securities, top gainers / losers, turnover
and volumes
 
Daily Trading Activity in Illiquid Scrip by exchange and by scrip across exchanges
 
Daily Concentration of Open Positions by Member/Client
 
Large Trader Report daily monitoring of the largest traders in scrips
 
. . . . . Endless Reporting through Customize
21 Report development Tool
 6 (a) Supervision at DSE

Activities at the DSE

 All orders and trades (Purchase and Buys)
 Daily reports and indices movement, market capitalizations,
active securities, top gainers/losers, turnover and volume
 Daily report s based on volume, high, low, closing and
opening prices;
 Securities price movement;
 Brokers performance;
 Exchange day summary;
 Corporate announcements 22
 6 (b) SURVEILLANCE AT DSE
The following are the activities performed by CMSA in respect to
Market Surveillance at DSE;
 To monitor the trading activities at the DSE trading system (to
ensure that DSE trading rules on equities, Bonds, Mobile
phones, etc that are adhered to)
 To review the daily market reports provided by the Exchange;
 Monitor and review both manual and electronic newspaper
reports, magazines, journals, bulletin boards, and other
relevant information resources to obtain list of stocks that have
drawn concern to investors.

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 6 (b) SURVEILLANCE AT DSE…
 To quickly identify unusual trading behavior for any trading
instrument;
 To accurately analyze trading data and market news to
determine if further investigation is needed or not;
 Collect, document and manage facts relating to suspicious
trading activity;
 Effectively initiate and provide support for the appropriate
enforcement action; which involves full investigation and
report preparation for the management decision
  On the other hand, CMSA is involved in monitoring
transactions on the CSD and to review reports provided by the
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CSDR.
6(c ) Market Abuse & Manipulation – DSE - R. 54

Conducts and practices prohibited by Act,

 Short-selling of securities (S. 65 (1))
 Insider-dealing (S. 112)
 Stock market manipulation (S. 107)
 It is prohibited to put clients’ money in an account other
than a Trust Account (S.69)
 Fraudulent inducement to deal in securities

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9.0Compliance and non compliance to market
supervision guiding laws
Compliance with market supervision guiding Act, rules, :-
•  All licensed and regulated persons by CMSA have to comply to the
terms and condition of the license;

Non - Compliance with market supervision guiding Act, rules and other
terms and conditions of the license:-
Action to be taken to any person who act contrary with the requirements of the
CMS Act,1994, DSE Rules 2016, CSDR Rules; CMSA can do the following:-
• Give directives to comply
• Reprimand (Warning)
• Fines and penalties
• Suspension of a license
• Revocation of a license
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 8.0 Supervision of market Players

The supervision of over other market players:-

To ensure that complies to:
 Capital Markets and Securities Act (Cap. 79) and its
Regulations
Companies Act (Cap. 212 R.E 2002)
• Statutory meetings of the companies and the resolutions;
• Accounts preparation and conduct of the audit
 Exchange specific rules e.g. DSE Rules:
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 8.0 Supervision of market Players

 CMSA Conduct onsite and offsite inspections

• Routine Inspections - which are scheduled and arranged at the beginning
of the period;
• Special/for course inspections – these are the same as Investigations
which depends on situation or issue at hand. They might arise as a result
of complaint received or any market misconduct.

 Periodic reporting
Financial statements – Interim and Annual financial statements
Dealer and Brokers are required to keep records in the prescribed
manner
 Investor protection fund (CMS Act)
Fidelity Fund, Dealers Deposit, Dealer Bank Guarantee

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9. Compliance and non compliance to Market
Supervision
Compliance with market supervision guiding Act, rules :-
•  All licensed and regulated persons by CMSA have to comply to
the terms and condition of the license;

Non - Compliance with market supervision guiding Act, rules and

other terms and conditions of the license:-
Action to be taken to any person who act contrary with the
requirements of the CMS Act,1994, DSE Rules 2016, CSDR Rules;
CMSA can do the following:-
• Give directives to comply
• Reprimand (Warning)
• Fines and penalties
• Suspension of a license
• Revocation of a license
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 10. Challenges related to market
supervision

• Few market players understand clearly the concept of market

supervision
• Awareness to capital market industry is still low
• Few products in the market
• Still liquidity is low
• Infrastructure problem

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 11. Conclusion

The supervision of securities market is very important in order to protect

investors as well as building public confidence.

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Thank you for listening

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