1. What are Capital Markets?

Capital markets are similar to other markets such as Nakasero market ( A local food market in Uganda), but differ in terms of the products traded and their organisation. Capital markets deal with the trading of financial products such as company shares, bonds issued by governments or private companies, units in Collective Investment Schemes, debentures, commercial paper and notes. These financial products can also be referred to as securities and are generally traded on a stock (securities) exchange. In Uganda, the market where these securities are traded is called the Uganda Securities Exchange.

2. What is the Capital Markets Authority?

It is a semi autonomous body responsible for promoting, developing and regulating the capital markets industry in Uganda, with the overall objectives of investor protection and market efficiency. It was established in 1996 following the enactment of the Capital Markets Authority Act (Cap 84).

3. What does CMA do?

CMA has a number of functions, these include;

  • The development of all aspects of the capital markets with particular emphasis on the removal of impediments to, and the creation of incentives for longer term investments in productive enterprises.
  • The creation, maintenance and regulation, through implementation of a system in which the markets participants are self regulatory to the maximum practicable extent of a market in which securities can be issued and traded in an orderly, fair and efficient manner.
  • The protection of investor interests.
  • The operation of an investor compensation fund
  • In its role as a regulator, the CMA oversees the activities of the Uganda Securities Exchange (USE), licensed intermediaries such as broker/dealers and investment advisors. CMA also regulates the operation of Collective Investment Schemes.

4. What is the difference between Capital Markets Authority and the Uganda Securities Exchange?
Capital Markets Authority (CMA) is the regulatory body that oversees the capital markets industry in Uganda, whereas the Uganda Securities Exchange (USE) is the actual market where capital markets products, namely, bonds, shares, are traded. The USE is licenced and regulated by the CMA.

5. What products are available in the capital markets industry?
There are various products available in the capital markets industry. However in Uganda's capital markets industry, currently there are three products in which one can trade; shares, collective investment schemes and government and corporate bonds.

6. What is a Share?
A share is a unit of ownership in a company. If you own shares of a company then you are a part owner of that company.

7. What are the Different Types of Shares?
Ordinary Shares (also known as equity shares);  these are shares or stocks that give the shareholder part ownership of the company in proportion to the number of shares held. The shareholders have voting rights and can appoint and dismiss directors. If the company makes a profit, they are entitled to a share of it in the form of dividends, if declared, which are based on proportionate ownership. In the event of liquidation, ordinary shareholders are paid last after everyone else who has a claim on the company's assets has been paid.

 Preference Shares; Preference shares bear a fixed annual rate of dividend with priority over all ordinary shares in the distribution of dividends from annual profits and have a prior claim to repayment on winding up the company. Shareholders in this category have no voting rights in a company, but are given priority with regard to dividends and repayment in the event of winding up.

Redeemable Preference Shares;  These are shares that can be redeemed (paid back to the shareholder) by the company either at fixed dates and prices, or on certain specified terms at the discretion of the board.

8. How Do I Benefit From Investing In Shares?
As a shareholder, there are several advantages that come with owning shares. These include:

Dividends: When a company makes a profit, the Board of Directors usually gives a percentage of the profit to its shareholders. This is known as a dividend. In other cases, the directors can propose to retain the profits in the company in order to increase its capital. These are known as retained earnings. Ideally if profits increase from year to year, then the dividend should also increase. Shares therefore offer the possibility of an increasing income to the investor.

Capital growth: If the company is growing, the value of the shares will also grow.

Capital Gains: When shares are sold at a price that is higher than the price at which they were purchased, this represents a profit. This profit is called a capital gain.

Voting rights: Shares give a shareholder the right to attend and vote on important company policies at the company's Annual General Meetings including making a choice on the directors of the company.

Collateral: Shares may be accepted as collateral (for example security for a loan).

Transferability: Shares are negotiable, can be passed on to another person; and they can be inherited.

9. Are there any disadvantages of investing in shares?

Yes. Much as there are good things associated with owning shares there are some considerations, these include:

      Share prices can go down as well as up depending on a number of factors such as the performance of the company, the economy, demand and supply factors. 
      If the company's profits fall, the dividend will fall and if the company makes a loss it may not be able to pay any dividend. 
      If the share prices fall, their value lessens and if the company collapses or becomes insolvent, the shares become worthless. 
      If the company goes into liquidation, shareholders are the last to be paid after all other creditors.

10. Can I buy shares from CMA?
No you cannot buy shares from CMA; CMA does not sell shares, being the regulatory body. What we do is put in place investor protection guidelines, to protect investors in the capital markets industry. You can buy shares directly from the company selling shares (during the Initial Public Offering) or you can contact a licenced broker/dealer who will purchase the shares on your behalf, on the stock exchange.

11.  How do companies benefit from capital markets?
A share issue allows companies to increase the equity base of the company and raise capital without bearing the burden of high interest payments associated with borrowed funds.

Full disclosure requirements of a listing on the Stock Exchange encourage companies to observe good business and management practices and ensure better corporate governance, benefiting not just the firm but the economy as a whole.

The public profile of the company also is improved thus attracting greater business opportunities.

12. Are capital markets brokers the same as real estate brokers?
No, there is a distinct difference between broker/dealers in the capital markets industry and real estate brokers. Broker/dealers transact business on behalf of the public and on their own behalf, on the USE. Broker/dealers are licensed by CMA and have to meet regulations as set by the CMA and USE. Their trade activities are overseen by USE and CMA. If you ever get a problem with your broker/dealer, then you can contact the CMA. Real estate brokers are intermediaries in the trade of property and land.

 13. How Can I Buy/Sell Shares?
You can buy shares during the initial offer period or from existing shareholders through a broker/dealer. New issues of shares usually take the form of Initial Public Offerings (IPOs), where shares are sold in a primary market. The purchase from existing shareholders takes place in a secondary market. You can sell your shares by contacting a licensed broker dealer who will help you sell your shares on the stock exchange.

14. Can I be compensated if the value of my shares falls?
No you cannot be compensated if the value/price of your shares falls. Every investment has a risk and this is one of the risks of investing in shares; the price of the shares can fall and if you chose to sell your shares at that particular time you would make a loss.

15. What are my rights as a shareholder?
Shareholders enjoy a number of rights including:

  • The right to vote at annual general meetings
  • The right to sell shares (ownership)
  • The right to approve or disapprove the sale or purchase of company assets
  • The right to amend the memorandum
  • The right to approve payments of dividends, issue of bonus shares, rights issues and increase in share capital.

16. Can I buy the shares of any company?
Yes, you can buy the shares of any of the companies listed on the stock exchange. Currently there are fourteen companies listed on the stock exchange so you can buy shares in any or all of them. A licenced investment advisor can give you advice on which shares are more suitable for you depending on your investment objectives.

17. Do all shares have the same price?
No, shares, just like different commodities, have different prices. Some share prices may be higher or lower than others. This can depend on the value of the shares, the nature and performance of the company or the demand and supply of particular shares. The prevailing share prices per company are published in a market report in the Newspapers every Tuesday, Wednesday and Friday.

18. When can I buy shares?
If you wish to buy shares during the offer period you can buy shares on any day of the week, directly from the company, or from selling agents appointed by the issuing company. The Initial Public Offer runs for a specific period of time, during which you can buy shares on any working day of the week.

If you wish to buy shares of a company listed on the stock exchange, you can contact a broker/dealer who will purchase shares for you on any weekly day.

19. How Much Money Do I Need to Buy Shares?
The amount of money you need to buy shares depends on the number of shares you wish to purchase, and the share price. In Uganda, the majority of the past IPOs have offered the public a minimum of 100 shares and further purchases in multiples of 100. So if the price per share of company X is UShs 200, and you wanted to buy 100 shares, then you will need (200(share price) X 100 (number of shares)) UShs 20,000 only. The amount increases with increase in the number of shares you wish to purchase; and also increases with an increase in share price.

20. What is a Prospectus?
A prospectus is a legal document that gives general information about the company, which is offering its shares to the public. Such information includes the company's history and operations, products and services. It can be a notice, a circular, an advertisement or any other invitation offering to the public a chance to purchase shares or securities of a company.

21. What is an Information Memorandum?
This is document containing details about an issuer of debt securities such as corporate bonds. It contains information about the company, amount issued, purpose of the issue, whether it is guaranteed or not, repayment terms, etc

22. What is a Listed Company?
A listed company is one that has offered shares to the public and whose shares can be bought or sold on the stock exchange.

23. What is a Primary Market?
This refers to the market in which a company offers its shares to members of the public for the first time. It is also known as an Initial Public Offering (IPO). To buy shares during the IPO, a Share Application Form (SAF) is obtained from participating broker/dealers and authorised selling agents, which is completed by the prospective investor.

The SAF is then sent to the Lead Broker and Registrar for processing, and the share allocation is made. Once payment is made, a receipt is issued to the purchaser.

If the offer is over-subscribed (applications exceeding the number of shares available), the shares available are divided among applicants according to the allotment criteria and the investor then receives a refund for the shares paid for, but not allocated.

The Registrar then sends share certificates of successful applicants to the participating broker/dealers and authorised selling agents where original SAFs were completed. The investor then receives the share certificate from the participating broker/dealers or authorised selling agents.

24. What is a Secondary Market?
This is the market in which the shares of a company are listed on the stock exchange. At the secondary market, shares can only be bought through a licensed broker/dealer, that is a firm that buys and sells securities on behalf of investors for a commission or a brokerage fee.

The broker/dealer or investment advisor will provide all the necessary advice, that is, which shares to buy. But the ultimate decision to invest your money is up to you, the investor. Before investing in shares, you should be clear about your own financial position and what you hope to achieve from your investment.

To sell shares, an investor needs to contact a broker/dealer and instruct him/her to sell either all or some of his/her shares.

Secondary market trading takes place at the Uganda Securities Exchange (USE) on Mondays, Tuesdays and Thursdays from 10.00am to 12:00p.m. Information about trading on the USE is  published in the Monitor and New Vision newspapers.

CMA issues licences to qualified firms or persons to transact business on the Exchange or give investment advice. These are known as broker/dealers and investment advisors or fund managers. The list of licensed brokers and all other market players can be obtained from the CMA website. You must only deal with licensed professionals.

25. What is a Stock Exchange?
A stock exchange is the actual physical location where trade in capital markets products takes place. The Uganda Securities Exchange has a trading floor on which brokers meet to carry out trade.

26. Who are Broker/Dealers?
These are professionals licensed by CMA to buy and sell shares on behalf of clients or on their own behalf. They are the only ones authorised to trade in securities on the USE trading floor. They also provide professional advice on selection and management of investments. A list of licenced broker/ dealers can be obtained from CMA.

27. Who are Investment Advisors?
These are licensed professionals who research on the financial status of companies listed on the Exchange and make recommendations on which securities to buy or sell. They are not permitted to transact business on the Uganda Securities Exchange trading floor. A list of licensed investment advisors can be obtained from CMA.

28. What is a Trading Floor?
A specific area at a stock exchange where brokers/dealers competitively bid or offer securities of listed companies on behalf of their clients or on their behalf.

29. Does the broker dealer charge me for selling/buying my shares?
Yes the broker/dealer charges you a commission for helping you trade in shares. S/he charges a fixed commission of 2% of the total value of your transaction. For example if Mary wishes to buy shares worth UShs 500,000, then the broker will charge her 2% which is;
2/100 x 500,000 = UShs 10,000

30. What is a Share Certificate?
This is a certificate showing evidence of ownership of shares in a company. It is a valuable document and must be kept safely.

31. How Many Companies are Listed on the Stock Exchange?
Currently (April 2011) there are 14(fourteen) companies listed on the stock exchange. These are Uganda Clays Ltd, Bank of Baroda (U) Ltd, British American Tobacco Ltd, DFCU Ltd, The New Vision Printing and Publishing Co-Ltd, Stanbic Bank Uganda Ltd, National Insurance Corporation, East African Breweries Ltd, Kenya Airways Ltd, Jubilee Holdings Ltd, Kenya Commercial Bank Ltd , Nation Media Group, Centum and Equity Bank Ltd.

32. How Many Stock Exchanges do we have in Uganda?
Currently we have only one approved stock exchange in Uganda; the Uganda Securities Exchange (USE), which is on 2nd Floor Workers House, Kampala.

Collective Investment Schemes

33. What are Collective Investment Schemes?
Collective Investment Schemes (CISs) are private financial arrangements that pool resources of many small savers, generating a large pool. The resources are then invested in various assets like shares, bonds, property and treasury bills with the sole purpose of generating high returns while minimizing risk through diversification of investments. 

Collective Investment Schemes (CISs) provide a means for mobilisation of savings and enable small investors to participate in capital markets. CISs widen the choice of investment vehicles; involve the public in the process of investing in securities through pooling resources together, which are then invested by professional managers.

34. What do I need to invest in Collective Investment Schemes?

In Uganda, there is one type of CIS called unit trusts. One's investment is measured by the number of units held.
Uganda has three types of unit trust funds in which you can invest, each with different requirements; the Balanced Investment Fund; the High Yield Fund and the Money Fund.

The Balanced Fund; This is a long-term fund whose asset allocation is mainly in long term products and securities like bonds, shares, etc. The minimum amount required to invest in this fund is UShs 50,000 only.

The High Yield Fund; This is a fund whose asset allocation is in medium-term securities and products. The minimum amount required to invest in this fund is UShs 50,000 only.

The Money Fund; This is a fund which invests in short term products and securities like treasury bills, current accounts, etc. This fund is better suited for people who wish to save money over a short period of time. The minimum amount required to invest in this fund is UShs 250,000 only.

Currently, there is only one licensed unit trust manager; African Alliance Uganda.

35. How can I benefit from investing in unit trusts?
Diversification of Risk ; Investors can secure a much wider diversification of risk, because these funds usually invest in different investments. Studies show that the greater the diversification of a portfolio, the lower the risk in relation to the return. Those who invest in CISs are therefore seeking to lower risk in relation to their return.

Access to Securities Investments – By investing a small sum (either in a lump sum or on a regular saving basis), an investor through the CIS can achieve a personal portfolio spread over several securities.

Lower Transaction Costs;  By investing in a CIS, investors incur lower costs than if they were to buy and sell a portfolio of individual securities directly. This is because transaction costs are generally related to the size of the transaction, and investors benefit from the fund manager's ability to deal in larger quantities of shares at lower average dealing costs. Fund managers can also allocate portfolios more efficiently than can individual investors.

Professional Management; Due to the complexity of analyzing information regarding individual securities, most individuals do not have the professional skills to manage their own investments. CISs provide full time professional management in a direct and simple form and this is especially important where market information is not widely available.

Investor Protection'; CISs have succeeded in developed markets due to an effective legal and regulatory framework. People need to have confidence that their money is protected from fraud, theft and other abuses. The CIS Act and regulations made under it provide the desired regulatory framework that will protect investors.

Other terms under Collective Investment Schemes Include;

Asset allocation- A term describing the proportion of a portfolio invested among the three main types of investments – cash or short-term equivalents such as Treasury bills (T-bills); longer-term interest-bearing securities such as bonds; and stocks or equities. An investor's asset allocation strategy can depend on a number of factors including; investment objectives, age, time horizon, risk tolerance, investment experience, etc.


Terms commonly used when referring to bonds are;

Bond- An interest bearing or discounted government or corporate security that obligates the issuer to pay the bond holder a specified sum of money, usually at specific intervals, and to repay the principal amount of the load at maturity.

Accrued income- Income that has been earned but not yet received. For example, if you buy a compounding Guaranteed Investment Certificate (GIC), interest accrues annually or semi-annually but is paid only at maturity, although it will be taxable each year.

Accrued interest- Accrued interest is the interest received from a security's last coupon payment date, up to but not including the settlement date:

Accrued interest = Principal x Coupon x Elapsed Days
360 (corp bond)

Ask Price- If you are buying a bond, the ask price is the price another investor or entity will sell it for.

Bearer bond- A bond for which possession indicates ownership and a right to payment.

Bid price- The price an investor is willing to pay for a security on the secondary market. If you are selling a bond, the bid price is the price another invstor or entity will pay for it.

Bond ladder- A bond strategy designed to help an investor reap the typically higher coupon rates of longer-term investments, while enjoying some level of protection against the inherently greater interest rate risk. A ladder is made up of multiple bonds with staggered maturities that typically have an equal amount of time between each maturity.

Coupon- The periodic interest that bond investors receive throughout the life of the security. Generally the larger a bond's coupon the less its price will change when market interest rates fluctuate.

Coupon Bond- A type of bond for which investors clip coupons and send them to the issuer for payment.

Coupon-rate- The percentage which is multiplied by the principal to arrive at the yearly coupon payment. While many bonds pay interest more often than annually, coupon-rates are given in annual percentages.

Credit risk- The risk that an issuer of a security may default. Also known as default risk

Current yield– A type of yield calculation that relates the annual coupon interest of a security to the market price. Current yield calculations fail to account for capital gains and losses as well as interest-on-interest from reinvesting coupon payments.


Offer price- If you are buying a bond, the offer price is the price another investor or entity will sell it for.

Maturity- The date the principal of a bond will be redeemed along with any remaining interest payments.

Portfolio- A group of selected securities that an individual, mutual fund, or UIT owns.

Yield-to-maturity- A type of yield calculation that accounts for capital gains and losses as well as interest-on-interest from reinvesting coupon payments.

Yield- A bond's yield is its effective annual rate of return expressed as a percentage. Yields, which are calculated using a number of factors including the principal, the maturity and the coupon, is one of the primary measuring sticks for a security.

Zero coupon bond- A type of bond which an investor buys at a discount, holds the bond until maturity and makes a profit based on the difference between the buy price and the face value of the bond. Interest payments on zero coupon bonds are withheld and are reflected in the difference between the purchase price and maturity face value. For taxable zeros, interest payments are taxable each year, as if they were distributed to investors.

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