NSE opens platform for unlisted firms’ shares

Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

By JAMES KARIUKI
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Summary

• Previously, investors had to contend with an informal OTC market in which prices are agreed upon on a one-on-one basis between a seller and a buyer, making price discovery difficult and opening the door to price manipulation.
• The NSE said Thursday that it has received approval from the Capital Markets Authority (CMA) to set up the platform, formally known as the Unquoted Securities Platform (USP), which will also help unlisted firms raise capital through private placement.
• It will be operated by a subsidiary of the bourse, known as NSE LLP.

The Nairobi Securities Exchange (NSE) has launched Kenya’s first formal over-the-counter (OTC) market platform, which will ease trading, clearing and settlement of shares of unlisted firms.

Previously, investors had to contend with an informal OTC market in which prices are agreed upon on a one-on-one basis between a seller and a buyer, making price discovery difficult and opening the door to price manipulation.

The NSE said Thursday that it has received approval from the Capital Markets Authority (CMA) to set up the platform, formally known as the Unquoted Securities Platform (USP), which will also help unlisted firms raise capital through private placement.

It will be operated by a subsidiary of the bourse, known as NSE LLP.

“The USP will enable companies that are not quoted (listed) and have a register of shareholders to enjoy price discovery and increase liquidity of their shares. Additionally, it will increase transparency as well as access to information for investors as prices will be published daily,” said NSE chief executive Geoffrey Odundo.

“Unlike (the informal) OTC where deals are negotiated privately, on USP all prices are publicly deliberated with a buyer offering and a seller accepting the price without the need to know one another.”

The NSE added that the platform will now enable unlisted commercial banks, cooperative societies and private companies access the benefits of an efficient OTC market anchored on leading technology capabilities and resources.

The move to set up the formal USP market brings to fruition a plan that has been more than a decade in planning.

Under the informal market, companies are largely responsible for setting the prices of their own shares, which opens a loophole for inflation of valuations, especially ahead of listing on the bourse.

Investors also found it difficult to buy or sell unlisted stock since they had to first identify a willing seller of buyer before doing the transaction, leading to illiquidity of these stocks. They can however enlist the services of stockbrokers or financial advisors to help fast track the process.

Under the new platform, buyers will now be required to open and maintain a USP trading account—similar to the ones they hold to trade listed equities— and buying and selling will be through a securities dealer.