LITERATURE REVIEW 2. I History of the Formation and Operations of the Ghana Stock Exchange The financial crises that the Ghanaian economy experienced by extending the banking sector in the early 1980’s made policymakers and the private sector to look for complementary sources of long-term capital so as to reduce the dominance that existed in the banking system. The government of Ghana in collaboration with the World Bank and International Monetary Fund (IMF) initiated Economic Recovery and Structure Adjustment Program in the mid 1980’s. A key component of the Economic Recovery and Adjustment Program was the Financial Sector Adjustment Program (FINSAP). Prominent in the FINSAP was the need to develop and promote the capital market and for that matter the stock exchange. It was also established to mobilize and allocate long-term savings for investment and economic growth (Donkor, 2001). As a prelude in the setting of a stock exchange in Ghana, the government of Ghana commissioned a study into the need for and the viability of a stock exchange. Judith Aidoo provides enough historical literature on the basis for the setting up and incorporation of the Ghana Stock Exchange in 1989 in the report titled ‘Report on the Feasibility of a Stock Exchange in Ghana’. Prior to the feasibility study conducted by Aidoo in 1989, an attempt had been made in 1971 to set up the Accra Stock Exchange based on the recommendation of the 1989 Pearl Report. In spite of these efforts the stock markets never took off. However, before the operation of the GSE in 1990, trading in shares of some multinational companies in the mid 1970s was conducted over-the-counter by two non-bank financial institutions, namely National Trust Holdings Company and National Stockbrokers Limited (GSE Brochure, 1997). The GSE was incorporated in July 1989 as a private company limited by guarantee under the companies code 1963(Act 179).Its status was however, changed to a public company under the companies code in 1994.GSE derives its recognition as an organized stock exchange under Stock Exchange Act. GSE started initial trading in November 1990 with eleven listed companies, no debt securities and three licensed Dealing Members (Stockbrokers).The number of listed companies then increased to thirty-five on the market as at 31st December 2005. (GSE Brochure, 1997) According to the (GSE Brochure, 1997), trading is carried out on the floor of the exchange under the call-over system with a limited auction. Trading is done in lots of 100 shares, with the exception of the Ashanti Goldfields Company (AGC) shares, which trade in lots of 10 shares and there are currently 13-licensed stock brokerage firms trading on the exchange. Common shares of 25 companies are listed and traded on the exchange with four corporate bonds, one cedi and three-dollar denominated bonds issued by Home Finance Company (HFC). Securities on the exchange can be purchased by anybody provided he/she is 18 years and above and of sound mind. Resident foreigners also allowed buying securities on the exchange. Also, non-resident Ghanaians and foreigners can purchase up to 10% of any of the securities approved for listing on the exchange. Furthermore, the total holdings of all external residents in one listed security shall not exceed 74%. This restriction applies to only non-resident foreigners and does not apply to externally resident Ghanaians. The commission rate is fixed and regulated by the government and the delivery and settlement system is centralized but not automated. (GSE Brochure, 1997)
2.2 Operations and theoretical overview of the Capital market. A capital market refers to a broad range of products and services that are associated with finance and investments. Therefore, a capital market will include components such as the stock market, commodity exchanges, the bond market, and just about...
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