The Ethiopian Capital Markets Authority (ECMA) has released draft rules to establish an Investment Protection Fund aimed primarily at compensating small private investors in cases of broker related misconduct while excluding large corporations and institutional investors from coverage.
The draft regulation was presented during a stakeholder forum and is anchored in Article 103 of the Capital Market Proclamation No. 1248/2013. Under the proposal, the fund would provide compensation for losses arising from a broker’s negligence, fraud, or insolvency. It would not, however, cover losses resulting from normal market movements such as declines in share or bond prices.
The proposed coverage is designed to address risks that may arise during the transaction process, particularly the period after an investor has paid money to a broker but before the securities are properly purchased and recorded. In such situations, compensation could apply where funds are misappropriated, diverted, or otherwise lost due to the failure of a service provider.
ECMA’s draft also introduces a maximum payout limit of 100,000 birr per investor, a ceiling that the authority says is intended to align with the scale of typical retail participation and to limit the fund’s exposure. Investors with claims above the cap would be compensated up to the stated maximum.
To support recovery of paid-out funds, the draft includes a mechanism to reward information that helps locate or identify hidden or misappropriated assets linked to broker failures. In addition, operational details, such as claims processing and the structure of decision-making bodies, would be set through ECMA directives, allowing adjustments without repeatedly revising the core regulation.
By excluding corporate and institutional investors, the proposal places greater responsibility on larger market participants to conduct their own due diligence when selecting brokers and other service providers.
The draft rules are part of broader efforts to develop Ethiopia’s emerging capital market infrastructure and improve confidence among first-time retail investors.
Source: Capital Ethiopia Newspaper
