As Ethiopia advances its economic reforms, the establishment of a modern, transparent capital market stands as a cornerstone of its strategy. Central to this is the work of the Ethiopian Capital Market Authority (ECMA), which is laying the groundwork for the upcoming Ethiopian Securities Exchange (ESX). A key piece of this framework is the new "Public Offering and Trading of Securities Directive No. 1030/2024," a regulation designed to build investor confidence through rigorous disclosure and accountability.

This legal update breaks down the critical standards in Chapters Three and Four of the directive, focusing on what issuers, directors, and legal counsel must know about the new rules for prospectuses, liability, and the public offering process.

A New Era of Liability: Who is Responsible for the Prospectus?

Chapter Three of the directive establishes a clear and stringent liability regime, making the accuracy of a prospectus a shared, non-negotiable responsibility.

Joint and Several Liability

The directive holds that key individuals and entities are jointly and severally liable to compensate investors for any losses suffered due to inaccurate, misleading, or incomplete information in a prospectus. This accountability extends to:

  • The Issuer itself.

  • Every member of the Board of Directors, including prospective directors.

  • The Promoters of a Company Under Formation.

  • Any Expert or Professional Party (such as a lawyer, auditor, or advisor) who authorizes the inclusion of their statements.

Crucially, the directive renders any disclaimer or provision attempting to limit or remove this responsibility null and void. This eliminates any ambiguity and places the burden of accuracy squarely on the shoulders of the company's leadership and its advisors.

Inside the Prospectus: A Blueprint for Transparency

Chapter Four outlines the mandatory structure and content of a prospectus, leaving no room for vague or incomplete disclosures.

The Front Page: A Gateway of Warnings and Responsibility

The first page of the prospectus must immediately inform investors of the offering's nature and risks. It must include a prominent, bolded, all-caps statement clarifying that the ECMA's approval is not an endorsement and that the Authority does not assume responsibility for the correctness of the information. Furthermore, it must contain a declaration where the Issuer, Board, CEO, and CFO accept full responsibility for the document's contents.

The New Standard for Risk Disclosure

The "Risk Factors" section has been significantly overhauled to prevent generic or boilerplate language. The directive now mandates that risk disclosures must be:

  • Specific and Relevant: Risks must be directly linked to the issuer, its industry, the securities offered, and the offering itself.

  • Prioritized: The most material risks, based on their probability and potential negative impact, must be presented first.

  •  Concise and Focused: The presentation must be clear and easy for investors to understand.

  •  No Mitigating Language: Issuers are explicitly prohibited from including disclaimers or language that downplays the disclosed risks.

     

The Offer Process: From Publication to Public Communication

The directive governs not only the content of the prospectus but the entire lifecycle of the public offering.

Material Changes and Investor Withdrawal Rights

If any information in the prospectus becomes materially inaccurate or incomplete after approval, the issuer must immediately suspend the offering and issue a Supplementary Prospectus—an official update to the original document. Following its publication, investors who have already subscribed are granted a 10-business-day window to withdraw their subscription.

Strict Advertising Rules

All advertisements related to a public offer require prior approval from the ECMA. They must be consistent with the prospectus and are prohibited from using misleading language like "top offer," "profitable," or any statement that guarantees profits. Furthermore, all ads must include a clear disclaimer stating that the ECMA's approval of the prospectus is not a recommendation to purchase the securities.

Practical Takeaways for Issuers and Advisors

The directive's new standards demand a proactive and meticulous approach. For companies and professional firms, the key takeaways are:

  • Elevate Due Diligence: The strict liability regime necessitates a more rigorous due diligence process than ever before. Legal and financial advisors must meticulously verify every statement made in the prospectus.

  • Brief Boards and Management: Corporate leadership must be formally briefed on their personal, non-delegable responsibility for the prospectus's accuracy. The era of relying on boilerplate disclaimers is over.

  • Rethink Risk Disclosures: Issuers should discard generic risk factors and develop specific, prioritized disclosures that genuinely reflect the company's unique challenges and opportunities.

Ultimately, Directive 1030/2024 is a clear signal that Ethiopia's capital market will be built on a foundation of transparency and investor protection. Early and thorough adoption of these standards will be critical for any entity looking to participate in this new and promising market.