HOW TO INVEST IN THE LUSAKA STOCK EXCHANGE

How To Invest in the Lusaka Stock Exchange in 6 steps

1. Pick a Broker

Brokers are the authorised intermediaries to trade financial assets on the Lusaka Stock Exchange. By May 2020, there were 6 Brokerage Firms approved to deal at the Exchange: Madison Assets Management, Stockbrokers Zambia, Pangaea Securities, Autus Securities, Equity Capital Resources, Finance Securities Zambia.

2. Open a Trading Account with one of these Brokers

The only requirement is to provide the following information: Proof of Residence, Proof of Identity, Completed Brokerage Account Opening Form and inform the Investment Amount (a fixed commission rate of 1.375% per transaction is charged). The broker will provide you with access to their investment platforms, allowing you to send purchase and sale orders to the Lusaka Stock Exchange's central system.

3. Choose the Asset in which to invest

The investor has to decide whether to invest in shares, sovereign bonds or corporate bonds.

4. After making a decision, send a Buy order via the Broker

Submitting a purchase order for a financial asset. It is possible to set a limit price or a market price of the selected asset.

5. The transaction is completed once buying and selling prices match

When the bidding price of an asset equals the asking price, the trade is executed. The Brokers makes the transaction payment at the Stock Exchange in your name, and they deliver the transaction amount to the buyer/seller broker. You become the legal owner of the asset.

6. The Broker issues the transaction notification and charges their fees

There is an fixed fee of 1.375% per transaction.

How does the Lusaka Stock Exchange work?

What is the Stock Exchange?

Based in Lusaka, the Lusaka Stock Exchange was founded in 1994 through the International Finance Corporation (IFC) collaborative efforts and the World Bank and is the leading Stock Exchange of the country. The Lusaka Securities Exchange's establishment was part of the government’s broader economic reforms to stimulate a dynamic private sector to be the primary engine for economic growth in Zambia. In short, the stock exchange is the institution that facilitates the negotiation of financial instruments in Zambia. Supply of financial instruments such as stocks, bonds, currencies, and the demand for these instruments (i.e. investors) interact here.

The Stock Exchange holds daily "Trading Sessions", for which it provides the physical, technological, human and operational means that allow efficient communication between Brokers, Issuers and Investors.

What is a Securities Issuer?

Issuers of securities are companies that seek to grow through raising capital at the Lusaka Stock Exchange. These companies raise money by issuing debt (bonds) or capital (shares). Issuers of securities may be government-controlled entities or private companies, but no matter who owns the company, it is the issuer who backs the investment.

For example, if you invested in bonds from a private company, the company will be required to pay the principal and interests to the bond investors.

How is a Trade completed in the Stock Exchange?

A trade, or, in other words, the investment flow of any financial instrument, could be summarised as follows:

Sellers (supply) offer to sell a financial instrument at a price, for example, a bond issued by a company. Sellers aim to make this price as high as possible (Price 1).

Investors (demand) who wish to buy the bond, make an offer for a price. They want this price to be as low as possible (Price 2). Then, Price 1 is higher than Price 2.

Buyers interact with sellers until they are at the point where Price 1 equals Price 2. When this occurs, the financial transaction is completed, and the bond is exchanged between the seller and the buyer. For this interaction to occur, a Broker is needed: A company that has the role of mediation between sellers and buyers, ordering prices and quantities of financial instruments. Below we explain the services that these companies provide.

What is a Broker?

Transactions of financial assets can only be completed through a company that works as an intermediary between investors and sellers. These intermediaries are known as Brokers.

Through complex technological tools, brokers manage transactions between investors, ordering the purchase and sale orders of financial assets by price and by order of arrival. By performing this service, they obtain a fixed commission per transaction when they execute a share's purchase.

Brokers are, then, market intermediaries, companies in which buyers and sellers interact and come together to buy stocks or bonds at the negotiated price.

To invest in the Lusaka Stock Exchange, an investor needs to open an account with a local Broker.