The newly installed Automated Trading System (ATS) at the Nairobi Securities Exchange (NSE) continues to have significant challenges and teething problems, barely two weeks after it was installed. This new platform, which went live on October 14th, 2019 replaces the older platform that has been operational for the past 11 years.
But even before functionalities of the new system, industry come to bear, market players and insiders are murmuring about the numerous logistical nightmares the refurbished platform presents, lack of preparedness by the Central Depository and Settlement Corporation (CDSC) to handle the new infrastructure and the issues brought about by the decoupling of CDSC and the NSE, meaning the two platforms function completely independent of each other.
Figures indicate that three days after the new trading system when live, Equity Turnover rose from Sh 361 million to Sh 1.9 billion, an increase of 449 per cent. Market capitalization increased from Sh 2.2 trillion to Sh 2.24 trillion. The NSE 20 Share Index was up 20 points to close at 2456.34 points from 2435.74 points the previous day. The number of shares traded rose by 400 per cent from 11.6 million to 51 million shares.
But the jury is still out on whether migration to the new trading platform or renewed interest on the banking sector counters as scarping of the rate cap law looms, could have pushed up the volumes and activity at the bourse.
“This improved trading performance comes on the back of enhancements done on the infrastructure to support the uptake of more products including trading through the mobile phone,” said Geoffrey Odundo, NSE Chief Executive Officer.
Sources within the capital markets, however, attribute the improved performance at the NSE to investor reactions to the possibility of parliament scrapping the rate cap law following reservations expressed by President Uhuru Kenyatta in a memorandum to parliament- concerning provisions in the Finance Bill 2019.
A section of stockbrokers said it is the strong interest in banking stocks that have fueled activity at the NSE and not the new trading platform.
On 22nd October, 2019, a terse meeting was held at the NSE trading floor, to iron out teething problems facing the new trading platforms. This meeting was attended by representatives from NSE, Capital Markets Authority, CDSC, fund managers, registrars and trading participants.
The issue here is that the refurbished trading platform appears unable to seamlessly link to the back office of brokers as previously was and the Central Depository and Settlement System (CDSC).” Said a market participant who sought anonymity
While an investor interested in trading at the bourse simply walked into a stock brokerage firm to open a CDS account in the previous system, this process has now shifted to a brokerage submitting numerous personal data to the Central Depository and Settlement Corporation (CDSC).
It now takes three to four days before a broker is able to open a CDS account as opposed to the previous model where a broker could open this account for a client in a matter of 3-4 hours.
In the former platform, a broker could open an account for the client, using non-alphanumeric values/figures in order to safeguard the investor accounts. All such accounts have now been flagged by CDSC requiring brokers to open new accounts for affected clients.
This CDSC directive, which affected over 80,000 CD accounts, which the corporation has flagged as ‘dormant’ is said to have prompted a meeting on 22nd October 2019 to discuss teething problems facing the new ATS. This meeting, held at the NSE trading floor, was attended by officials from the bourse, Capital Markets Authority (CMA), stock brokerage firms, fund managers, registrars and representatives from lobby group Kenya Association of Stockbrokers and Investment Banks (KASIB).
Top on the list of concerns that the meeting aimed to address was the slow process of opening CDS accounts, with stockbrokers raising concerns that the manual process used by the CDSC was hurting their business.
Stockbrokers added that while the trade file from NSE still arrives on time at their back offices, there is a significant delay by CDSC to transmit the settlement file-used to debit or credit CD accounts after a transaction is complete.
Reports indicate that in the past week, there are stockbrokers who receive the settlement file six hours after trading has closed. This implies that now takes longer to conclude a transaction.
In the previous platform, stockbrokers had a 360 view of all activities taking place during the trading session, including who was buying of selling what equities. This vintage position of the market is now not available to the brokers, making the trading environment opaque and illiquid.
“Although the market experienced a few teething problems during the first two days of trading after migration to the new trading ecosystem, the bourse has been quick to rebound and has already registered a 3 months high in traded volumes,” said Willy Njoroge, Chief Executive of Kenya Association of Stockbrokers and Investment Banks(KASIB).
He added that the new trading infrastructure at the NSE will enable features that were not available previously such as short selling, securities lending and borrowing as well as intraday trading.
The CMA has already developed regulations that will facilitate securities lending and borrowing while the NSE has revised Equity Trading rules to accommodate the new trading platform.