The Capital Market, in Plain Language
A plain-language guide to 45 key concepts, grouped from the basics up. The general terms are short definitions to get you oriented; the Ethiopian-specific ones are linked to the official documents and can be handed to Ask for a cited answer.
Beginner
Newcomers & the curiousStart here — the building blocks of markets.
- What is money?
- A widely accepted medium of exchange, unit of account, and store of value used to pay for goods, services, and debts.
- Saving vs investing
- Saving sets money aside safely for short-term needs with little risk or growth; investing puts money into assets like shares or bonds seeking higher returns over time, accepting risk.
- What is a financial market?
- A marketplace where people and institutions trade financial assets such as shares, bonds, and currencies, channelling savings to those who need capital.
- Money market vs capital market
- The money market trades short-term debt (under a year, e.g. Treasury bills); the capital market trades long-term instruments like shares and bonds that fund long-term investment.
- Shares
- Units of ownership in a company. A shareholder owns a fraction of the company and may receive dividends and voting rights.
- Bonds
- Debt securities: an investor lends money to an issuer (government or company) in return for periodic interest (coupons) and repayment of the principal at maturity.
- Securities
- Tradable financial instruments representing ownership (shares), debt (bonds), or rights — the assets bought and sold in capital markets.
- Stock exchange
- A regulated marketplace where securities are listed and traded, providing price discovery, liquidity, and transparency. In Ethiopia this is the ESX.
- IPO
- An Initial Public Offering: the first sale of a company's shares to the public, through which a private company becomes publicly traded and raises capital.
- Dividends
- A share of a company's profits distributed to shareholders, usually in cash, as a return on their investment.
Intermediate
Aspiring investorsHow markets are structured and measured.
- Primary vs secondary market
- The primary market is where securities are first issued (e.g. an IPO), raising money for the issuer; the secondary market is where investors then trade those securities among themselves.
- Market capitalization
- The total market value of a company's outstanding shares (share price × number of shares) — a measure of company size.
- Price discovery
- The process by which the interaction of buyers' and sellers' orders determines an asset's fair market price.
- Liquidity
- How easily an asset can be bought or sold without significantly moving its price. Liquid markets have many active buyers and sellers.
- Yield
- The return an investor earns on a security, usually expressed as an annual percentage of its price (e.g. a bond's interest relative to its cost).
- Coupon
- The fixed periodic interest payment a bond pays its holder, set as a percentage of the bond's face value.
- Government securities
- Debt issued by a government to borrow money — e.g. Treasury bills (short-term) and bonds (long-term) — generally considered low-risk.
- Corporate bonds
- Debt securities issued by companies to raise capital, paying interest to investors; riskier than government bonds and usually higher-yielding.
- Investment banking
- Financial services that help companies and governments raise capital by issuing shares or bonds, and advise on mergers and large transactions.
- Brokerage
- A firm or intermediary that executes buy and sell orders for investors on a securities exchange, usually for a commission.
Advanced
Active investors & professionalsMechanics of issuance, trading, and post-trade.
- Book building
- A price-discovery process for new issues where underwriters collect bids from investors to gauge demand and set the offer price.
- Underwriting
- When an investment bank guarantees to buy — or arrange buyers for — a securities issue, assuming the risk of selling it to the public.
- Capital raising
- The process by which companies or governments obtain funds by issuing equity (shares) or debt (bonds) to investors.
- Rights issues
- An offer letting existing shareholders buy additional new shares, usually at a discount, in proportion to their current holdings.
- Corporate actions
- Events initiated by a company that affect its securities — dividends, stock splits, rights issues, mergers, and the like.
- Market making
- When a firm continuously quotes buy and sell prices for a security, providing liquidity and profiting from the spread.
- Settlement
- The final transfer of securities to the buyer and cash to the seller that completes a trade.
- Custody
- The safekeeping of investors' securities by a specialized institution (a custodian) to reduce the risk of loss or theft.
- Clearing
- The process between trade and settlement that confirms, matches, and calculates the obligations of each party.
- Institutional investors
- Large organizations — pension funds, insurers, banks, and funds — that invest sizeable pools of money in the markets.
Ethiopian-specific
Anyone investing in EthiopiaEthiopia's market — linked to the source documents in this knowledge base.
- Capital Market Proclamation 1248/2021
- The foundational law that established Ethiopia's capital market and its regulator (ECMA), setting the legal framework for securities, exchanges, and market participants.
- ECMA
- The Ethiopian Capital Market Authority — the government regulator that licenses and supervises Ethiopia's capital market: exchanges, intermediaries, and issuers.
- ESX
- The Ethiopian Securities Exchange, where shares and other securities are listed and traded under its Rulebook.
- NBE
- The National Bank of Ethiopia — the central bank, which issues government securities (Treasury bills, OMO auctions) and oversees monetary policy.
- CSD
- The Central Securities Depository — infrastructure that holds securities in electronic (dematerialized) form and supports settlement and custody.
- Ethiopian investment banks
- Licensed intermediaries that help Ethiopian companies raise capital and bring securities to market under ECMA rules.
- Ethiopian securities registration
- The process by which securities must be registered or approved before a public offering, governed by ECMA's public offering directive.
- ESX listing requirements
- The conditions a company must meet to list its securities on the ESX, set out in the ESX Rulebook.
- Ethiopian government securities
- Treasury bills and bonds issued by the government through the NBE to finance public spending, auctioned to investors.
- Ethiopian IPO ecosystem
- The emerging set of issuers, advisers, intermediaries, and rules enabling companies to go public in Ethiopia's new market.
- Capital Market Service Providers (CMSPs)
- Firms licensed by ECMA to operate in the market — securities brokers, dealers, investment banks, and market makers. The CMSP Licensing Directive sets who may run this business, the capital they need, and the conduct expected of them.
- Market conduct & insider trading
- The rules that keep trading fair: insider trading, market manipulation, and fraudulent practices are prohibited. Ethiopia's Capital Market Proclamation bans market abuse and sets penalties for it.
- Sharia-compliant securities
- Investments structured to follow Islamic finance principles — no interest (riba) and no prohibited activities — often using profit-sharing or asset-backed structures. A high-interest segment for Ethiopia given wide demand for interest-free finance.
- Collective investment schemes (CIS)
- Pooled vehicles — such as mutual funds — that let many investors combine money into a single professionally managed portfolio, spreading risk and lowering the entry barrier for small savers.
- Fund managers & institutional investors
- The professionals and institutions — pension funds, insurers, and fund managers — that invest large pooled sums on others' behalf. Their participation deepens liquidity and stability as Ethiopia's market matures.
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Proclamation No. 1248/2021 is the law that created Ethiopia's capital market. It was enacted to help mobilise capital for the national economy, promote financial innovation, and let investors share investment risk — and, just as importantly, to protect investors and keep the market fair, orderly and transparent.
It lays down the ground rules everything else is built on. It defines what counts as a “security” and a “capital market” (a market where shares, bonds, derivatives and related instruments are bought and sold), it establishes the Ethiopian Capital Market Authority (ECMA) as the regulator, and it sets uniform requirements for companies that want to raise money from the public.
Almost every other rule in this knowledge base — ECMA's directives, the ESX Rulebook, the rules on public offerings and on market abuse — flows from powers granted by this Proclamation.
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The Ethiopian Capital Market Authority is the government regulator established by the Capital Market Proclamation. Its principal objectives (Article 5) are to protect investors, to ensure securities can be issued and traded in an orderly, fair, efficient and transparent way, and to reduce systemic risk in the market.
ECMA licenses and supervises the people and firms in the market — the exchange, the intermediaries (capital market service providers) and the issuers — and it writes the directives that turn the Proclamation into practical rules.
It is run by a seven-member Board of Directors (which includes the Governor of the National Bank of Ethiopia) together with a Director General and staff, and is based in Addis Ababa.
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The Ethiopian Securities Exchange is the country's stock exchange — the regulated marketplace where shares and other securities are listed and traded. It is the first organised securities exchange in Ethiopia's modern history, launched as the new capital market opened, and it operates under its 2024 Rulebook.
The Rulebook sets who may list, how a company must keep disclosing information to the public once listed, and when trading in a security can be suspended or a company delisted. ESX runs more than one board — a Main board for larger issuers and a Growth board for smaller, growing companies — as well as an over-the-counter (OTC) market.
As the market has opened, companies including Awash Bank, Bank of Abyssinia and Gadaa Bank have been listed, and Ethiopia has begun exchange-based trading of government securities.
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The National Bank of Ethiopia is the central bank. Besides running monetary policy, it acts as the government's banker, fiscal agent and financial adviser — and in that role it issues the government's securities and manages market liquidity through Open Market Operations (OMO).
It sells Treasury bills (short-term borrowing) through regular auctions on behalf of the Ministry of Finance, in 28, 91, 182 and 364-day maturities, with bids submitted through the Central Securities Depository system; it also established the five-year Treasury bond, sold to banks.
The NBE oversees the Central Securities Depository and has directed that government and NBE securities move to electronic (dematerialised) form.
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The Central Securities Depository is the market's back-office infrastructure: an automated platform that holds securities as electronic book entries instead of paper certificates.
It provides post-trade services — registering ownership, safe custody, clearing and settlement of trades, and processing corporate actions — for both government and private securities. Holding securities electronically (“dematerialised”) makes the market faster, safer and more transparent and reduces systemic risk.
In Ethiopia the CSD is overseen by the National Bank of Ethiopia; both the NBE's dematerialisation directive and ECMA's directive on dematerialisation of publicly offered securities require securities to be held this way. It is also where investors' bids for government Treasury bills are submitted.
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In Ethiopia's market an “investment bank” is a specific licensed role, not just a name. Under ECMA's Capital Market Service Providers Licensing and Supervision Directive (No. 980/2024), investment banks are a category of capital market service provider with their own eligibility and licensing requirements (Part Seven of the Directive).
Their authorised activities centre on helping companies raise capital — including underwriting, where the investment bank commits to buy, or find buyers for, a securities issue. They must meet capital and conduct requirements and follow the Directive's code of conduct.
ECMA has already licensed several investment banks and other providers — for example Prime Capital and United Capital — as the market opens.
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Before a company can offer securities to the public in Ethiopia, those securities must be registered with ECMA. This is governed by the Directive on Public Offering and Trading of Securities (No. 1030/2024), which prohibits offering unregistered securities to the public and sets out who is eligible to issue, what a registration statement must contain, and the exemptions that apply.
A public offer normally requires a prospectus — a disclosure document, whose form and content the Directive specifies, giving investors the facts they need — usually supported by a transaction advisor and, where relevant, underwriting. Once ECMA approves the registration statement it issues a certificate of registration, and the securities are registered with the Central Securities Depository.
When a company completes registration, ECMA publishes a public notice: the many “Notice of Registration of Securities” notices in this knowledge base (for banks and insurers such as Wegagen, Awash and Enat) are exactly these.
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Registering securities with ECMA lets a company offer shares to the public; listing on the ESX is the further step of getting those shares admitted to trade on the exchange. The conditions are set out in the ESX Rulebook (2024).
The Rulebook sets initial listing requirements a company must meet to be admitted, then continuing obligations once it is listed — above all ongoing, timely disclosure of information that could affect its share price, plus rules on related-party transactions. It also covers when trading may be suspended and how a company is delisted.
ESX offers different routes onto the market: a Main board for larger, established issuers and a Growth board with lighter requirements for smaller, growing companies.
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The Ethiopian government borrows from the market by issuing securities through the National Bank of Ethiopia, on behalf of the Ministry of Finance.
The main instruments are Treasury bills — short-term borrowing sold at a discount, auctioned regularly in 28, 91, 182 and 364-day maturities — and Treasury bonds, a longer-term (five-year) government obligation sold to banks. The NBE also runs Open Market Operations to manage liquidity.
These securities are moving onto electronic (dematerialised) infrastructure, with bids submitted and holdings settled through the Central Securities Depository, and Ethiopia has begun exchange-based trading of government securities as the market develops.
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An initial public offering (IPO) is how a company first sells shares to the public and becomes publicly traded. In Ethiopia this ecosystem is brand new and is being built piece by piece: the legal framework (the Proclamation and ECMA's public-offering directive), the intermediaries (licensed investment banks and advisers), the exchange (ESX) and the settlement infrastructure (the CSD).
To get companies ready, ECMA launched an “IPO Clinic” to coach potential issuers through the path to listing, and ESX publishes an IPO guide.
The landmark case is Ethio telecom's IPO — a public share offering by the state telecom — widely described as heralding a new era for the market, alongside the many bank and insurance share registrations now moving through the system.
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“Capital Market Service Provider” (CMSP) is the umbrella term in the Proclamation for any person or firm carrying out regulated capital-market activities. Rather than a single “broker” licence, Ethiopia's framework defines a wide range of CMSP types, each licensed and supervised by ECMA under the CMSP Licensing and Supervision Directive (No. 980/2024).
These include securities brokers and dealers, digital sub-brokers, investment banks, market makers, securities custodians, investment and robo advisers, Shariah advisers, collective investment scheme operators, crowdfunding intermediaries, credit rating agencies, portfolio managers and appraisal firms.
Each type has its own eligibility, capital and licensing requirements, and all must follow the Directive's code of conduct — duties to clients, to the market and to the regulator. ECMA has begun issuing CMSP licences to the first firms.
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The Capital Market Proclamation makes it illegal to abuse the market, and insider trading is the clearest example. “Inside information” (Article 93) is information that is specific or precise, has not been made public, and would likely have a material effect on a security's price if it were. An “insider” (Article 94) is anyone holding such information — for instance a director, employee or shareholder of the issuer.
Article 95 prohibits a person with inside information from trading in the affected (“price-sensitive”) securities, from encouraging someone else to trade in them, or from improperly passing the information on.
The Proclamation also empowers ECMA to police market manipulation and other unfair practices and to set penalties — the legal backbone of the fair, orderly and transparent market ECMA is required to maintain.
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Islamic (Shariah-compliant) finance avoids interest (riba), excessive uncertainty (gharar) and speculation (maysir), using profit-and-loss-sharing and asset-backed structures instead — for example mudarabah (one party provides capital, the other manages, and profit is shared on an agreed ratio while a loss falls on the capital provider) and musharakah (a partnership where all parties contribute capital and share profit and loss). The Islamic equivalent of a bond is a sukuk.
Ethiopia treats this as a high-potential segment given wide demand for interest-free finance. ECMA has published an Islamic Capital Market Policy Framework White Paper (April 2025) and a roadmap, proposing Shariah governance such as a Central Shariah Advisory Board and Shariah advisers; the CMSP framework already provides for licensed Securities Shariah Advisers.
This is an emerging, planned part of the market that is being built out rather than fully operational today.
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A collective investment scheme (CIS) — such as a mutual fund — pools money from many investors into a single professionally managed portfolio, spreading risk and lowering the entry barrier for small savers.
Ethiopia's framework provides for this. The Proclamation (Article 2) defines a CIS broadly as any arrangement that lets people participate in, or receive profits from, the acquisition, holding, management or disposal of securities or other property, and ECMA's CMSP Directive (No. 980/2024) creates a licensed “Collective Investment Scheme Operator” role with its own eligibility and conduct rules.
As with several parts of the new market, the legal building blocks exist; the products themselves are expected to develop as the market matures.
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Institutional investors are large organisations — pension funds, insurers, banks and professional fund managers — that invest big pooled sums on other people's behalf. Their participation deepens liquidity and adds stability as a market matures.
In Ethiopia, banks and insurers are already central: many are among the first companies to register shares and list, and insurers and banks have themselves invested in the ESX. ECMA's July 2024 study of shareholder patterns in Ethiopian financial institutions examines this ownership base.
“Securities Portfolio Manager” is a licensed CMSP role under Directive No. 980/2024, giving professional fund managers a regulated basis to operate as the investor base broadens beyond individuals.