Experts call for same-day trading, settlement at NSE
Monday, September 21st, 2020
Lewis Njoka @LewisNjoka
Nairobi Securities Exchange (NSE) recorded the highest turnover this year, last week, signalling recovery after nearly six months of decline induced by the Coronavirus pandemic
Turnover rose by 583 per cent to stand at Sh3.76 billion on Thursday up from Sh0.54 billion on Wednesday, a jump attributed to high foreign investor demand for equities listed on the Kenyan market.
But despite the rebound witnessed last week, analysts are warning that the Nairobi bourse has several challenges it needs to address urgently if it is to catch up with its peers in the developed world.
Ephraim Njega, a marketing and management consultant, noted that the NSE settlement cycle was too long to support active trading, saying there is no reason why it should take four days for shares to reflect in one’s account yet no one buys shares on credit.
He said broker fees and other charges were too high making it difficult for investors to earn a decent sum.
“We need same day settlement. I wonder why the NSE is unwilling to solve this issue yet it is the best ways to increase its revenues as the frequency of trade rises,” Njega said.
“The commissions by brokers and other charges are too high. These total to over four per cent when you consider both the cost of buying and selling. For you to make a decent gain you need over 10 per cent price gain assuming you are doing significant volumes,” he added.
Churchill Ogutu, head of research at Genghis Capital, concurs with Njega, saying lack of intraday trading at the NSE made it difficult for investors to take advantage price fluctuations at the bourse.
“If you buy a stock it will hit your account three days later (T plus 3), and when you sell, it will take another three more days before the money is in your account. By that time, the prices have moved,” he said.
John Kirimi, a former chairman of the Kenya Association of Stock Brokers and Investment Banks (Kasib), however, said shortening the payment cycle will depend on more than just the NSE.
He said he was aware that the bourse was working with other stakeholders to shorten the cycle but it would have to take into account the bank clearance cycle for payments.
Kirimi decried the levying of capital gains tax on brokerage commissions, saying it only served to push broker charges higher to the disadvantage of investors.
While the broker commission and other charges are much higher than in developed countries, he added, they are definitely not four per cent. “A contract note from the broker would bear this out.
The government is not helping by levying capital gains tax on the brokerage commissions,” said Kirimi.
He concurred with Ogutu and Njega that the number stocks listed at the bourse is low and mostly illiquid, saying it is a challenge stakeholders were well aware of and were addressing.
Njega said the stock exchange risks a market crash emanating from foreign investors leaving as the economy moves closer to a debt-fuelled crisis.