mary c nkosi : promoting the development and regulation of capital markets in malawi speech by mrs mary c nkosi, deputy governor of the reserve bank of malawi, at the official launch of african alliance, blantyre, 14 january 2009. * * * the chairman of malawi stock exchange ; board members of african alliance ; chief executive officer of african alliance malawi & officials from african alliance group ; distinguished guests ; ladies and gentlemen. it is an honour to be at the official launch of african alliance securities ltd. as you are all aware, the reserve bank of malawi is the regulatory and supervisory authority and is therefore charged with the responsibility of promoting the development and regulation of capital markets, amongst others. this is done through exercising entry control, on - going supervision, policy development, enhancing competition and market development, consumer education and protection, and exit administration. in this connection therefore, we are very pleased to be here to witness the birth of a new baby ( the media often refers to such new babies as “ new kid on the block ” ). for the benefit of the audience, african alliance malawi was licensed in september 2008. mr chairman, ladies and gentlemen, we have observed in the recent times the favourable macroeconomic condition in the country and this has been instrumental in spearheading the expansion of capital market operations. the financial market has experienced rapid growth of market intermediary businesses and public participation witnessed by oversubscriptions during initial public offerings ( ipo ). the bank has received a number of enquiries and applications geared towards carrying out brokerage, asset management and advisory services besides banking. the recent developments are an indication of potential and existing resources that need to be channelled from surplus units to deficit units and this is therefore an opportunity and also a challenge to all intermediary market players to facilitate the movement of these funds. mr chairman, ladies and gentlemen, on the supervisory side, the reserve bank shall continue to carry out its responsibilities to achieve its mission of ensuring the existence of a fair, safe, sound and stable non - bank financial services industry in malawi in line with international supervisory standards. critical in this regard and in order to protect investors, the bank shall only allow eligible market players to operate on the market. it is expected that the players will conduct themselves in line with expected professional standards and conduct. i want to assure you that the reserve bank will perform its work with professionalism, integrity, impartiality and in a friendly and cooperative manner without compromising its

externalities. the use of contingent capital can be explored once the details of this proposal are formulated. apart from the quantitative parameters, the institution ’ s business model and its legal structure should also dictate the quantum of higher capital requirement. less complex and less interconnected firms may have to be provided a different leeway. the “ winding down plan ” seems useful since it will force the board to understand group structures and raises the credibility of the threat. it is however premised on two basic assumptions : one, the entity has been transparent enough in terms of the information content in drawing up its own demise plan – the adverse selection issue and two, the regulatory authorities would actually be able to enforce these plans in times of crisis. in unexpected scenarios, as our experience has shown, the regulatory actions would largely be a function of contextual assessments and any readymade plans may be dysfunctional. it would however be interesting to see how this plan is actually operationalised. otc markets : there is committed effort globally to move all otc derivative transactions onto exchanges / electronic trading platforms which is a welcome move.. this is a more broadbrush approach but going forward, i am sure we will need to devise a more nuanced approach in this regard as there will be continued need for otc products i. e. customized to the needs of the real sector. furthermore, in regard to central counterparties, it is imperative to examine the incentive structures. to generate more income there is need for more volumes and that can come only from leverage. there is, therefore, need to closely regulate the risk management systems and mandate margin requirements in the form of high quality liquid assets. given the nature of their functions and their systemic importance, it is worthwhile to consider central counterparties as “ public utility ” not - for profit entities. it would also become imperative for such systemic entities to be brought under systemic oversight and be regulated by the systemic regulator. more than the above immediate measures, what is required is a debate on some of the fundamental issues. now that the centrality of banks in the economic system has been established, a much stricter view needs to be taken regarding the activities that banks can undertake with depositors ’ money. should large systemically critical banks be allowed to heavily leverage themselves with depositors ’ money? should the banks facilitate the highrisk high - return leverage game to benefit private investors at the cost of depositor funds? in that sense, i appreciate the arguments for separation