It is an indisputable fact that securities markets are central to the growth of emerging

economies. In principle, the securities markets are projected to accelerate economic

growth by providing a boost to local savings and increasing the quantity and the quality
of investment. Taking this into account, this essay discusses the relevance of a
securities market and the effectiveness of investor protection instruments under the
Securities Act of 2016. It will begin by elucidating what securities markets are then
discuss their importance and thereafter, the effectiveness of investor protection
measures as provided for in the Securities Act of 2016.

Securities markets are a constituent of the wider financial market where securities can
be bought and sold between subjects of the economy, on the basis of demand and
supply. Securities markets encompass equity markets, bond markets and derivatives
markets where prices can be determined and players both professional and non-
professionals can meet1. The Securities Act2 defines securities market to include inter
alia:

…a place where, or facility, whether electronic or otherwise, by which—

(a) trading in securities is regularly undertaken;
(b) invitations are intended, or may reasonably be expected, to result, whether
directly or indirectly, in securities transactions; or
(c) information is regularly provided on the prices at which, or the consideration
for which, particular persons or particular classes of persons propose, or may
reasonably be expected, to undertake securities transactions;

Securities markets satisfy some basic requirements, to wit, they support industry
development through the accretion of savings, maturity transformation and investment
fund allocation. They perform numerous functions in the process of economic growth in
that securities markets offer both the issuers and the buyers with a panoramic range of
investment varieties that can escalate the level of both the funds and investment.

Securities markets entice investors in a country as they offer higher returns to the
investment portfolio. This investment portfolio can easily draw more savers in the
investment process that in turn join forces with institutions such as brokerage houses,
investment banking, pension schemes and money investing firms among others.

1
Anthony M. Reinach, The Nature of Puts and Calls, New York, 1961.
2
No. 41 of 2016, section 2.
Securities market attract external sources in the capital markets through foreign direct
investment. Business houses need capital to obtain other aspects of production that
ensure full employment and produce more industrious capacity in the economy. This
objective can be achieved through a securities market.

Securities markets can supplement the development, growth and stability of a country’s
economic structure, increase the distribution of savings, allocation of current real wealth
and ensure the circulation of income. Securities markets can ensure effective
apportionment of funds to dynamic investment by the formation of money and capital
markets. In the modern world, capital creation would be difficult without a market or
cluster of markets for the allocation of savings to those firms and businesses seeking
capital for investment in economic goods and services 3.

In view of this, an assortment of instruments representing money and claims to money

are employed. Savers provide the funds and in exchange expect to get dividends,
interest, or rent and the investors offer the hope of income and price appreciation.
Therefore, a securities market is a niche for instruments representing longer-term funds.
It comprises institutions and mechanisms whereby intermediate term funds and long
term funds are pooled and made available to businesses, government and individuals.

Securities markets play a crucial role for the proper functioning of the economy. They
serve as a conduit of funds from savers to borrowers. They channel funds to those who
can make best use of them.

For the securities markets to function efficiently, it is required that issuers and buyers
have confidence in each other’s ability to transact business. Due to the high volatility
and interdependence among players in the securities industry, failure of one firm to
meet its obligation to another could have a domino effect on the financial viability of
other firms. This is why this market is regulated so as to protect investors and ensure a
sustainable financial system by diminishing the chance of a series of interrelated
defaults because of risks involved in securities markets.

3
Collins Patrick S, Regulation of Securities, Markets and Transactions, John Wiley & Sons, Inc., New
Jersey, 2011.
Therefore, it is imperative to discuss some of the salient provisions of the Securities Act
that serve to protect investors. Section 37 of the Act requires that any investment
adviser should be licensed as such. Persons and companies need to have adequate
information before investing their money in any undertaking. For instance, deposits
could lose value due to inflation and the price of shares, bonds and other securities can
be volatile during the investment period. There are no guarantees. That is why the best
way for investors to protect the money they put into the securities markets, they need an
investment adviser with the appropriate level of expertise to perform their role. To
achieve this, the Act has put in place safeguards that require such an adviser to be
licensed. This provision insures that all investors, whether juristic persons or private
individuals, should have access to certain basic facts about an investment prior to
investing in it.

Additionally, the Act4 frowns upon a person who establishes and maintains a securities
market, securities exchange and clearing and settlement agency without any license
from the Securities and Exchange Commission. This instills confidence in an investor
knowing that they are dealing with a bona fide player in the securities market. Also the
establishment of a guarantee fund5 as one of the prerequisite for the granting of a
license is one of the safeguards put in place to protect the investors. This fund is meant
to guard against any risks that come with investing in such type of business.

Public companies are required to publish the company’s liquidity position and other
information to the general public 6. This serves as a common reservoir of information for
all investors to use for them to judge whether or not to trade or hold a particular security.
This results in an active, efficient and transparent manner which in turn creates a
platform for capital formation which is so crucial to the growth of the economy of any
country.

Furthermore, the Securities Exchange Commission, under this Act has more options at
hand to deal with securities law violations or infringements. It has introduced
investigating powers under section 161. The evidence the investigator gathers from
4
Section 20.
5
Section 23(1)(e)
6
Section 76
various market operators is important in ensuring that a factual basis is developed and
that investors are protected from any adverse effects that may arise from any
misconduct in the securities markets. Noncompliance to set rules and regulations
attracts penalties. All this is aimed at enhancing investor protection.

However, the duration of 180 days 7 provided for a person to wait before they could
presume that they have been granted a license from the time of launching an
application before the commission is just too long for an investor. It only serves as a
deterrent to would be investors thereby denying the country the much needed capital for
the growth of its economy.

The regulatory framework should ensure that the regulator has ample independence
free from political interference. It should have resource and powers to meritoriously
regulate and control the market participants. Securities markets support privatization
and pension reform. It is clear that the securities markets can play an increasing role in
the funding of large companies.

7
Section 21(4).