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VII E. Strengthen Regulation and Supervision: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA

Guest post by: International Monetary Fund

Article Overview: Regulation and supervision of the financial system play a great role in determining both its stability and the extent of services provided.

VII E. Strengthen Regulation and Supervision: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA

Regulation and supervision of the financial system play a great role in determining both its
stability and the extent of services provided. Regulation and supervision are typically aimed
at the protection of investors from the potentially opportunistic behavior of insiders. Investor
protection helps solve agency problems and information asymmetry arising from inside information.14 This helps in making optimal decisions, increasing access to external finance
and resulting in productive investment and eventually higher firm growth (La Porta, Lopezde-
Silanes and Shleifer, 2003). There is the need for a well structured and clear rule of law,
within an efficient judicial system, which allows for contract repudiation and expropriation
risk in this regard.
Regular disclosure, transparency and enforcement form an integral part of regulation and
supervision. Important disclosure requirements include relevant information with regards to
transactions, accounting and the identity of ultimate beneficial owners. They must be
nonetheless simple and supportive of the legal and accounting framework (Friedman and
Grose, 2006). Similarly enforcement procedures need not be long, cumbersome and
expensive. Enforcement essentially requires compliance and the ability to prosecute. The
presence of a securities regulator is important in this regard to ensure enforcement. Such
enforcement can also be complimented by effective private laws on contracts and dispute
resolutions (Lopez-de-Silanes, 2004). The presence of strong corporate governance
mechanisms also help boost investor confidence in regulatory issues.
Strict ethical and conduct of business rules could be developed for members of African stock
exchanges. Rules must follow international best practices but at the same time reflect local
structures and needs. Emerging African markets should also implement rules that are
“necessary” rather than what would be “nice” (Friedman and Grose, 2006). In Africa though,
there are laws and rules for regulation and supervision. The real challenge is the shortage of
experienced supervisors and the absence of a strong tradition favoring compliance with the
rules and discouraging regulatory forbearance (Vittas, 1998).

IMF Working Paper
African Department
Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges
Prepared by Charles Amo Yartey and Charles Komla Adjasi
August 2007

Related Articles
  VI. B. Banking Sector Development: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
  Introduction: Stock Market Development in Sub-Saharan Africa
  VI. A. Macroeconomic Stability: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
  VII G. Strengthen Education: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA
  III. STOCK MARKET DEVELOPMENT IN SUB SAHARAN AFRICA:TRENDS AND CHARACTERISTICS

Article Tags: african markets, african stock exchanges, beneficial owners, corporate governance, disclosure requirements, dispute resolutions, external finance, governance mechanisms, grose, information asymmetry, investor confidence, investor protection, lopez de silanes, opportunistic behavior, optimal decisions, private laws, productive investment, repudiation, securities regulator, shleifer



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Re: Hello from South Africa - you are welcome to the forum of achievers.its great to have you here,i also reside in SOUTH AFRICA.
Information about doing franchise business in China - CHINA’S FRANCHISE LEGAL SYSTEM Introduction Franchises has a history of more than one hundred years in foreign countries, now it has developed to be a mature business mode, and it is widely used in many countries, especially the developed ones. Recently, franchises has been developing fast in China, covering more than sixty industries and trades such as catering, retailing, clothes-washing, indoor decorations and gym. However, the market order of franchises is chaotic in some industries and areas. There are also some illegal and criminal activities under the guise of franchises. Under such circumstances, several important laws have been promulgated to regulate the commercial franchising activities. Applicable Legislation The main legislative provisions governing the commercial franchising in the PRC are: the Measures on Administration of Commercial Franchises; and the Measures on Administration of Archival Filing of Commercial Franchises; and the Measures on Administration of Information Disclosure of Commercial Franchises Qualification for Franchisors According to the laws, the franchisors as those enterprises who own such business sources as registered trademarks, enterprise logos, patents and proprietary technology, and license these business sources to franchisees. Firstly, the franchisors shall be enterprises, excluding other economic organizations and individuals. Secondly, the trademarks which can be licensed to franchisees shall be registered trademarks. According to the Trademark Law, the trademarks, whether registered or not, are protected under the laws, though there is difference in the vigor and extents of protection. It seems that the Ministry of Commerce has restrictions in recognizing trademarks, since it only provides “own trademarks to be licensed to others” at large, which causes chaos in practice. In the cases relevant to franchising disputes which we provided legal service to, all of them involve the situation that the franchisors granted licenses of non-registered trademarks or the trademarks which were in application to others, and when there was infringement on trademarks, the franchisors were unable to prevent infringement on trademarks. Then the interests of the franchisees could not be realized. What’s more, franchising activities with non-registered trademarks also, to some extent, encourage commercial frauds. Thirdly, the logos, patents and proprietary technology of enterprises are included in the business sources to be licensed to others for the first time, which enlarges the application scope of franchises and will improve the development of franchises. Requirements to be Met in Carrying on Franchising Activities In addition to the condition that only the enterprises will be allowed to carry on franchising activities referred to above, the franchisors shall also have mature business modes, and are able to provide business guidance, technology support and training. The enterprises which copy the manuals, websites and enlisting documents of others, and have no service abilities for providing business guidance, technology support and training shall be excluded. What needs pointing out is that even these enterprises that are allowed to carry on business may face with the suits claiming them for unfair competition and infringements on intellectual properties. In addition, the Measures clearly request that the franchisors shall operate at least two directly operated shops, and the period of operation shall be more than 1 year, which aims to prevent frauds by the way of franchising. Information Disclosure Requirements and Regulation on Franchisors Information disclosure system is the core system of franchising. The laws provides that the franchisors shall establish and implement a perfect information disclosure system, and provide the relevant information and franchising contracts in written form, at least thirty days before execution of franchising contracts. It also sets out the specific provisions on the information which shall be provided by franchisors, including the basic conditions and commercial reputation records of the franchisors and their legal representatives, business sources owned by franchisors, abilities of franchisors to provide service to franchisees and management and supervision on business of franchisees, franchisee fees and the payments, and budgets for investment in franchising shops. To the franchisors that violate these provisions, the authorities in charge of commerce will order them to rectify, charge penalties and make public statements. Archival Filing and Public Announcement Systems To protect the franchisees’ lawful rights and interests, considering the asymmetric information between franchisors and franchisees, in addition to intensifying information disclosure requirements and regulating the activities of franchisors, the Measures also bring in the archival filing and public announcement systems. The Measures provides that the franchisors shall make a filing with the commerce administrative department within 15 days after the execution of franchising contracts for the first time. Anyone who intends to engage in any commercial franchise activities within a province, autonomous region, or municipality directly under the Central Government shall go through the archival filing formalities in the commerce administrative department of the people’s government of the province, autonomous region, or municipality directly under the Central Government where the franchisors are located. Anyone who intends to engage in any commercial franchise activities beyond a province, autonomous region, or municipality directly under the Central Government shall go through archival filing formalities in the commerce administrative department of the State Council. Any franchisor having been engaging in franchise activities before May 1, 2007 shall apply for archival filing at the commercial administrative department. The Ministry of Commerce has established the national network for archival filing work relating to commercial franchise. Any franchisor shall go through the archival formalities through the government website. The general public may obtain the following information through the government website of the Ministry of Commerce: (1)The registered trademark(s), enterprise mark(s), patent(s), know-how and other business resources of the franchisor; (2)The franchisor’s archival filing date; (3)The location of the legal business place, contact information and name of the legal representative of the franchisor; and (4)The location of the business place of the franchisee(s) within China. The authorities in charge of filing will cancel the archival filing if there is any following activities of franchisors, and make public announcement on the government website: (1) the business licenses of the franchisors have been withdrawn by the registration administrative authorities for illegal business; (2) the authorities in charge of filing receive judicial suggestion letter on cancellation of archival filing from the judiciary for illegal business by franchisors; (3) the franchisors conceal the relevant information or provide false information, which has been proved; (4) the franchisors carry on cancellation by themselves. In addition, the illegal activities of the franchisors will be announced to the public. By Erex Chen, a Chinese lawyer based in Shanghai.


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