The trading floor of the Johannesburg Stock Exchange. Johannesburg is
Africa’s largest stock exchange, with a market capitalisation of more
than $150 billion. PHOTO | GIANLUIGI GUERCIA | AFP
The Southern African Development Community integrated stock
markets offer good lessons for the East African Community as it seeks to
integrate its stock exchanges via a suitable interconnectivity window.
This was laid bare at a meeting of capital markets experts held in Kampala recently.
The
SADC operates a shared model that makes it possible to procure
affordable digital operating platforms and reasonable sharing of
commissions between stockbrokers.
Under this model, a
stockbroker who refers an equity trade to a colleague based in a
participating stock exchange receives 33.3 per cent of the commission
earned from the stock trade. The balance is allocated to the stockbroker
that actually executes the trade.
In comparison,
disagreements over technological issues have significantly slowed down
integration of East Africa’s stock markets trading platforms, compounded
by funding gaps.
According to Paul Bwiso, the chief
executive officer of the Uganda Securities Exchange; “Our stock markets
are in different stages of development and this makes system integration
more difficult than expected.
“While Uganda and Tanzania’s stock exchanges appear more
compatible with each other based on results of trades done in the past,
Rwanda’s stock exchange shares a CDS platform with the central bank in a
very entrenched arrangement,” he said.
“Kenya’s
securities exchange operates an internal CDS platform separate from that
of the central bank while Burundi is yet to establish an exchange. Due
to divergent technological factors, the integration of the local stock
market trading platforms across East Africa has been pushed to first
quarter of 2020. But finding consensus on a trading revenue sharing
ratio remains one of the biggest obstacles facing the stock market
integration agenda,” he added.
In the SADC model, stock exchanges hosted by member states enjoy access to discounted prices for advanced but expensive technological platforms by leveraging on the Johannesburg Securities Exchange’s economic muscle.
In the SADC model, stock exchanges hosted by member states enjoy access to discounted prices for advanced but expensive technological platforms by leveraging on the Johannesburg Securities Exchange’s economic muscle.
Johannesburg is
Africa’s largest stock exchange, with a market capitalisation of more
than $150 billion—bigger than East Africa’s individual economies—and has
more than 300 listed companies on its trading board.
MoUs between stockbrokerage firms in EAC countries may help drive future consensus on a viable trading revenue sharing ratio.
“Equity
Stockbrokers Ltd of Uganda signed an MOU with Dyer and Blair Investment
Bank of Nairobi for cross border equity trading and sharing of
commissions in 2008. Most of the clients serviced under that MoU were
signed up during the Safaricom IPO,” said Edward Ruyonga, an equity
dealer at the USE.
Discounted prices
“Under
that MoU, Dyer and Blair was entitled to 55 per cent of the commission
earned from the cross-border trades while Equity Stockbrokers received
45 per cent. This MoU benefited Equity Stockbrokers well but was
terminated in 2013 due to unforeseen circumstances,” he added.
Whereas
hi-tech trading platforms such as the Automated Trading System and
Central Depository System cost more than $1 million in foreign markets
and are an investment burden to small stock exchanges, a joint
procurement order by the JSE to a major technology supplier is likely to
yield bargain equipment prices and cost savings for member exchanges.
“This
shared business model helps smaller stock exchanges offset huge capital
expenditure costs by leveraging on significant financial resources
offered by a large securities exchange in the co-operation network.
“When
a stockbroker in Johannesburg calls another in Namibia for MTN Group
shares, revenue from that transaction is shared between the two and the
exchange that originated the trade would also earn a fee from this
transaction,” Tiaan Bazuin, CEO of the Namibia Stock Exchange said.
“Under
the co-operation framework, the JSE shares Initial Public Offering
information with all SADC stock exchanges to enable market participants
prepare for upcoming equity offers,” Bazuin added.
Similar
strategies pursued by large African banks during acquisition of core
banking platforms such as Finnacle have helped their subsidiaries buy
upgraded software systems at discounted prices coupled with favourable
maintenance packages when compared with ordinary, individual purchase
orders that hardly attract discounts.
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