ADDIS ABABA, Jan 26 – Ethiopia is introducing a new framework to strengthen investor protection in its emerging securities market, jointly overseen by the Ethiopian Capital Market Authority (ECMA) and the Council of Ministers.
The country’s securities watchdog has drafted the Capital Market Compensation Fund Regulation, a legal framework designed to act as a robust safety net for investors. The regulation sets out how the fund will be managed, financed, and operated, offering protection for participants against losses when licensed market entities fail to meet their obligations.
A dedicated Capital Market Compensation Fund Administration Committee will oversee investor claims and manage unclaimed dividends from publicly listed companies.
The regulation specifies that the committee will be jointly administered by the Authority and the Council of Ministers. The Council will provide strategic oversight, including approving investment policies, setting minimum reserve levels, and determining corrective measures if the fund’s resources fall below required thresholds. The draft stipulates that the fund’s capital cannot drop below 60 percent of its initial allocation.
The committee will compensate individual investors in cases of contractual failure by licensed brokers, exchanges, or clearing institutions, including insolvency or licence suspension. Institutional investors such as banks, insurance companies, and pension funds are excluded, focusing protection on retail participants and limiting systemic risk. Compensation per investor is capped at 100,000 birr, which is about 642 US dollars.
ECMA held a public consultation on January 22, briefing market participants on these measures. Senior Legal Advisor to the Authority, Sirak Solomon, told reporters that the fund is targeted at small investors. “They cannot afford legal representation if they fall victim to fraud, and without protection, they risk losing their savings,” he said. Detailed operational rules will be issued in a separate directive. The draft is designed to limit Cabinet involvement in daily operations, reducing back-and-forth with the Authority.
Beyond compensation claims, the committee will manage unclaimed dividends transferred from public companies into trust accounts, ensuring they remain accessible to rightful beneficiaries. The regulation requires strict separation between the fund’s assets and the Authority’s operational budget, with all resources held in trust.
Funding will come from government seed capital covering 75 percent, with licensed market participants contributing the remaining 25 percent. The fund is designed as a limited safety net, intended to offer basic investor protection rather than full loss coverage.
The move comes as the East African country throws open the doors of its financial sector under the Homegrown Economic Reform Agenda, with backing from the International Monetary Fund (IMF) and World Bank. Central to the programme is the country’s first organised capital market, marking a shift for a nation long known for keeping its money behind closed doors.
Ethiopia’s capital market follows decades of absence. Limited share trading occurred during the Imperial era, including informal equity transactions in the 1950s and an over-the-counter market in the 1960s, which collapsed after the 1974 revolution.
ECMA was established in 2021, and the Ethiopian Securities Exchange (ESX), a public-private partnership, began operations on July 11, 2025. It has listed four companies so far, including state-owned Ethio Telecom, marking the foundation of Ethiopia’s modern, regulated capital market.
