3.0 Overview of Stock Exchange of Mauritius
The Stock Exchange of Mauritius (SEM) was incorporated on March 30th, 1989 as a private limited company. In October 2008, the SEM has adopted a new Constitution and became a public company and is now regulated by the Financial Services Commission (FSC). The SEM is responsible for the operation and promotion of an efficient and regulated securities market in Mauritius. It is committed to becoming a World Class Stock Exchange. It is actually striving to become a service-driven and operationally excellent organization with world-class trading and settlement capabilities, which incorporate and maintain the fundamental principles of market integrity, investor protection and efficient discovery. The SEM currently operates two markets - the Official Market and the Development and Enterprise Market (DEM).
Since its inception, the SEM has contributed significantly to the development and broadening of the financial services sector in Mauritius (SEM ltd, 2000). The setting up of the SEM in July 1989 coincided with the on-start of the process of transformation of the Mauritian economy into one of the leading economies in Africa with a well-diversified economic base. The Stock Exchange was expected to achieve the following key strategic objectives:
• Offer an organized secondary market mechanism for the trading of financial instruments
• Provide listed companies with a platform to raise long-term capital to fi nance their expansion
• Offer investors new investment alternatives to traditional savings instruments
• Attract foreign capital flows and increase the level of foreign exchange reserves
• Contribute to the democratization of the ownership structure of listed companies and the emergence of a shareownership culture in Mauritius.
• Raise the overall level of Corporate Governance, improve disclosure standards, reinforce managerial transparency and ensure alignment of local business standards with international best practice
• Act as a barometer of overall macro-economic performance as well as of company-specific performance.
• Contribute to the internationalization of the Mauritian economy and raise the profile of Mauritius as an international financial services centre.
(SEM Annual Report 2009).
The SEM has come a long way from its setting up in July 1989. At its early beginning as a pre-emerging market, trading took place only once a week on five listed stocks during a session lasting barely fifteen minutes. Now, with a number of initiatives undertaken, the SEM has emerged as one of the leading Exchanges in Africa, leading the change process in the region and firmly engaged in the innovative thrust for an improved Exchange infrastructure. The SEM has moved away from a manual and fairly opaque stock exchange infrastructure to a fully-automated, highly transparent and well-integrated stock exchange infrastructure that replicates the standards observable on developed Exchanges.
The activities of the SEM during the past decades can be characterized by three distinct phases. The 1989-1992 period was the introductory phase which efforts were geared towards the development of market infrastructure and the education of companies and investors. The 1993-1995 period was the take-off phase and was characterized by stronger investors participation, the setting up of a collective investment vehicles and the listing of a few important companies. The third phase was characterized by the emergence of the SEM on the international financial market. Thus over the years, it has witnessed major changes in its operations, regulations and technical framework. This was necessary to reflect the ever changing standards of the stock market environment worldwide. SEM is now a member of the World Federation of Exchanges (WFE).
3.2 Developments and Achievements
In 1994 SEM was opened to foreign investors following the lifting of exchange control. Foreign investors benefit from numerous incentives like free repatriation of revenue obtained from the sale of their shares and there is no capital gains tax and no withholding tax on dividends from companies on the Official List. Moreover, foreigners do not need approval to trade shares unless investment is for the purpose of legal or management control of a Mauritian company or for holding of more than 15% in a sugar company.
In January 1997, there was the implementation of an Automated Central Depository and Settlement system (CDS). This was an important milestone in the development of stock market to meet international standards on clearing and settlement of trades. It helped to place SEM on an equal footing with other well known stock exchanges. The CDS has brought about prompt, efficient clearing and settlement of trades and at the same time reduced some of the inherent risks in the process.
CDS ensures delivery versus payment (DVP) on a T+3 rolling basis, together with the support of the Bank of Mauritius which acts as a clearing bank. It also provides for a Guarantee Fund Mechanism to guarantee settlement failures of participants.
In June 2001, SEM's Automated Trading System (SEMATS) was launched . SEMATS put an end to the traditional trading patterns which had typified the SEM since its inception and introduced a state-of-the-art electronic trading system built on third generation technology. Trading in securities is conducted through dedicated trading workstations located at intermediate dealers and which linked to the SEM trading engine.
In December 2003, the SEM started to trade in treasury bills. This was the first step aimed at setting up of an active secondary market for government instruments. The SEM is now designing new listing rules to cater for the listing of offshore funds and international products.
In November 2005, SEM acquired the membership status of the World Federation of Exchanges (WFE). The WFE is a central reference point and it sets standards for exchanges and the securities industry in the world. Being member of this Federation implies that the SEM is complying with the strict standards and market principles established by the WFE. According to Mr. Benimadhu, membership of the WFE will very much assist the Exchange in attracting foreign investors, and indeed the SEMTRI index gained 32 points in January, 2006, to close at a record high of 1,984 at the end of January. Capitalization of the exchange reached Rs 81 billions, representing 43.3% of GNP, with Rs 22 millions arriving in the first two weeks of January alone.
One of the recent development, was the launching of the Development & Enterprise Market (DEM) on the 4th August 2006. CEO of the Mauritius Stock Exchange (SEM), Sunil Benimadhu said that the new market would allow the SEM to contribute to the process of empowerment of entrepreneurs and the government's goals for the 'democratisation' of the Mauritian economy. The latter is a market designed for companies previously quoted on the Over-The-Counter (OTC) Market, Small and Medium-sized Enterprises (SME's) and newly set-up companies which possess a sound business plan and demonstrate a good growth potential. This market is meant for companies wishing to take advantage of facilities provided by an organized and regulated market to raise capital to fund their future growth, improve liquidity in their shares, obtain an objective market valuation of their shares and enhance their overall corporate image. The rules governing the DEM are less stringent than those of the Official Market, and the market is open to foreign investors. With the implementation of the DEM, the OTC Market was phased out in January 2007.
The table below shows the evolution of some market statistics for the Official Market from 1998 to 2008.
Market Developments Statistics on Stock Exchange of Mauritius (Official Market)
Annual Turnover (Rsm)
Annual Traded Volume(Rsm)
SEMDEX Index(Jul 1989= 100)
No. of Listed Companies (Equities + debentures)
Source: SEM Factbook 2009
The Official Market started its operations in 1989 with five listed companies and a market capitalization of nearly USD 92millions. As at end February 2009, there were 40 companies listed on this market representing a market capitalization of nearly USD 2,450.13 millions. While the DEM was launched on August 4th, 2006 and as at end February 2009, there were 49 companies with a market capitalization of nearly USD 1,023.91 millions.
3.4 2008-2009 Financial Crisis
The SEM faced its worst times in 2008-2009 due to the financial crisis. 2008-2009 was characterized as a year of utmost uncertainty, high volatility and unparalleled pressure for financial markets around the world. The financial crisis did not confined only to the U.S. but became a worldwide problem, creating havoc not only to stock markets , but also threatening economic growth in Africa and in fast growing Asia and Latin America. Mauritius also saw its future growth forecasts threatened by the gloomy scenario prevailing.
The Official Market lost 44.67% of its value between 15 September 2008 and 3 March 2009. This was because investors scrambled for exit from the equity market in the absence of visibility regarding the extent and duration of the international crisis and the impact of a significant downturn of the developed world on the future growth prospects of a highly open economy like Mauritius.
After an initial period of confusion, investors were made fully aware that the banks in Mauritius had not been exposed to toxic assets as their counterparts had been in the US and in the UK, that the banking system in Mauritius was tightly regulated and that certain off-balance sheet transactions and the over-leveraging of banks for investments in highly risky assets were not allowed in Mauritius. Notwithstanding these reassurances, the highly capitalized and liquid listed stocks in the banking sector and hotel sectors were the hardest hit as investors attempted to sell first the liquid stocks. The SEM-7 index, which tracks the largest and most liquid stocks, lost 51.20% between 15 September 2008 and 3 March 2009.
3.5 Stock Market Indices
The Stock Exchange of Mauritius has 3 indices for its Official Market and 2 indices for its Development & Enterprise Market.
3.5.1 SEMDEX (Stock Exchange of Mauritius Index)
The SEMDEX is an index of the market, commonly used to measure the performance of the stock market. It is an index of prices of all listed shares and each stock is weighted according to its share in the total market capitalization. This means that changes in the SEMDEX are mainly due to changes in the prices of shares with relatively higher market capitalization.
The current value of the SEMDEX, is expressed in relation to a base period, which is chosen as the 5th July 1989, with an index value of 100.
The index formula is as follows:
where the market value of any class of shares is equal to the number of shares outstanding times its market price. The base value of listed shares is adjusted to reflect new listings, rights issues and other capital restructurings.
The SEM-7 can also be used to measure performance. This index is operational since April 1998. It comprises of the seven largest eligible shares of the Official List, measured in terms of market capitalization. There are some criteria which shares need to meet for their inclusion in the SEM-7.
The maintenance of the index is made by an independent Index Management Committee.
For the quarter starting 07th October 2009, the constituents of the SEM-7 were :
http://www.stockexchangeofmauritius.com/images/bullet.gifMauritius Commercial Bank Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifState Bank of Mauritius Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifNew Mauritius Hotels Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifSun Resorts Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifRogers and Company Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifNaiade Resorts Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifHarel Freres Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifIreland Blyth Ltd
http://www.stockexchangeofmauritius.com/images/bullet.gifShell (Mauritius) Ltd
· Selection Criteria
The SEM-7 consists of the largest 7 Mauritian companies by market value which qualify as eligible for inclusion in the SEM-7.
* To be eligible for inclusion in the SEM-7, a company must be incorporated and resident for tax purposes in Mauritius.
* The share must be listed on the Official Market.
* Investment Funds (whether companies, trusts or partnerships) are excluded from the SEM-7.
* Only ordinary shares are included in the SEM-7.
* Where a company's ordinary shares are issued partly paid or nil paid and the call dates are already determined and known, the market price , for the purpose of calculating its market capitalization, is adjusted so as to include all such calls (i.e., the fully paid price).
* Shares must have sufficient liquidity. The following criteria shall be used to ensure that illiquid shares are excluded:
(i) Liquidity in terms of value traded (Rs)
Shares (other than new issues) which did not have an average value traded per session of Rs100,000 over the 3 months prior to the quarterly review are not be eligible for inclusion.
(ii) Liquidity in terms of trading frequency (%)
Shares which did not trade on at least 50% of the trading sessions during the 3 months prior to the quarterly review are not be eligible for inclusion.
At least 25% of the ordinary shares in issue must be publicly available for investment and must not be in the hands of a single party or parties acting in concert. The Index Management Committee determines whether this criteria is met.
Where the limit on foreign ownership has been reached or exceeded as at the day of the quarterly review, the share is deemed ineligible for inclusion.
3.5.3 SEMTRI (Stock Exchange of Mauritius Total Return Index)
The SEMTRI is a Total Return Index launched in October 2002. Its main purpose is to provide domestic and foreign market participants with an important tool to measure the performance of the local market. In addition to capturing the price movements of listed stocks, the Total Return Index, SEMTRI, considers also the capital gains/losses on listed stocks and gross dividends obtained on these stocks since the inception of the local stock market on July 5, 1989. Gross dividends are assumed to be re-invested in the stocks underlying the capital index, SEMDEX.
The SEMTRI constitutes a very good indicator of the performance of the overall stock market. It provides a good benchmark of the evolution of the stock market. It captures the two forms of return that an investor may expect to generate from his investment , namely, capital appreciation and dividend payments. The SEMTRI also enable the SEM to regularly publish the list of top performing companies in terms of capital growth and dividend payments
3.5.4 DEMEX (Development & Enterprise Market Price Index)
The DEMEX was launched on 4th August 2006. It is a market-weighted index of all the ordinary shares quoted on the OTC market.
It is calculated as follows:
Where the base market capitalization of DEMEX is the initial market capitalization at market close on 4th August. When the shares of a new company are listed on the DEM, the base market capitalisation of DEMEX will be adjusted to reflect the initial market capitalization of the new listing on the day the newly admitted security is traded.
3.5.5 DEMTRI (Development & Enterprise Market Total Return Index)
The DEMTRI is quite similar to the SEMTRI. It is a Total Return Index but for the Development and Enterprise Market.
The calculation is divided into two steps:
(i)The first step is to transpose the total daily announced dividend payments into index points on the ex-dividend date. This is called XD adjustment to the underlying capital index, i.e the DEMEX.
gi = announced dividend per share of the ith company
wi = the number of ordinary shares issued by the ith company
d = Divisor (base market capitalisation) of the underlying capital index,
(ii) The second step of the calculation uses the figures calculated in step one (XD adjustment). These figures are included in the formula below to calculate the DEMTRI, assuming re-investment of gross dividends.
DEMTRI t = Total return index value today
DEMTRI t - 1 = Total return index value yesterday
DEMEX t - 1 = underlying capital index yesterday
DEMEX t = underlying capital index today
XDt = XD adjustment to underlying capital index today
The maintenance of and operational adjustments to the DEMTRI in respect of corporate events, such as new listings or delistings, rights issues, bonus issues and so on will be done in accordance with the rules governing the maintenance of the underlying capital index, which is the DEMEX.