ECMA Would Compensate Foreign Investors When a Broker Fails

Foreign portfolio investors could be compensated for losses caused by the failure of licensed capital-market service providers or of market infrastructure, under a draft framework the Ethiopian Capital Market Authority released last week.

The draft creates an Investor Compensation Fund for eligible foreign investors, and sits inside a wider set of rules on custody, repatriation, ownership limits and foreign exchange.

What the Fund is for

The question a foreign institution asks before putting money into a young market is not what the index did last year. It is: if my broker collapses, or the clearing system fails, what happens to my position?

Until now Ethiopia has not had an answer. The draft provides one — a fund that pays out when the failure is on the market's side rather than the market's direction. That is a narrow promise, and deliberately so. It does not insure anyone against a bad investment.

It is one piece, not the whole

The Authority is explicit that the Fund sits alongside the other safeguards rather than replacing them. Custody rules determine who holds the asset. Repatriation rules determine whether the proceeds can leave. Ownership limits determine how much of a company a foreign investor may hold. Foreign-exchange rules determine at what rate and when.

An investor's real exposure in Ethiopia is the product of all five, and the compensation fund addresses only the counterparty-failure corner of it. Opening the Ethiopian Securities Exchange to international capital depends on the other four being as legible as this one.

Open

The draft has not been passed. ECMA has not published the Fund's size, how it would be capitalised, who pays the levy, what the per-investor cap is, or whether domestic investors get an equivalent. Nor is the consultation deadline public. Those are the terms on which the framework will be judged, and none of them is settled.

Sources: Addis Fortune, 5 October 2026