African stock markets inch closer to integration

People look at stock index figures at the Johannesburg Stock Exchange. The stockmarket is among bourses participating in the pilot Africa cross-border trading. PHOTO | FILE

By JAMES ANYANZWA

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Managers of African stock exchanges have selected 30 brokerage firms for cross-border trading, part of an ambitious project to integrate seven bourses with a

combined market capitalisation of $1.25 trillion.

The latest move comes after the African Securities Exchanges Association (ASEA) signed a contract with United Arab Emirates software firm DirectFN for the design and implementation of the software linking trading systems in the seven markets.

These stockmarkets are the Johannesburg Stock Exchange, Nairobi Securities Exchange, Nigerian Stock Exchange, Stock Exchange of Mauritius, Egyptian Exchange, Casablanca Stock Exchange and Bourse Régionale des Valeurs Mobilières (BRVM) integrating eight West African countries — Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.

The African Exchanges Linkage Project (AELP) is a joint initiative of ASEA and the African Development Bank (AfDB) and seeks to promote cross-border trading and liquidity in African stock exchanges.

Already four exchanges — BRVM, Casablanca Stock Exchange (CSE), Egyptian Exchange (EGX) and Nigerian Stock Exchange (NGX) — have been successfully connected to the link trading terminal live environment.

“The facilitation of cross-border trading will open up the markets to a diverse portfolio and investment opportunities,” as well as enhance liquidity, said ASEA president Edoh Kossi Amenounve.

“Brokers and investors will be able to access a variety of asset classes in their markets of interest,” added Dr Amenounve.

The AELP Link will send orders from a broker on one exchange to a sponsoring broker on the host exchange where the security is listed. The sponsoring broker will then put an order into the host exchanges’ automated trading system.

The sponsoring broker will clear and settle trades in the host market using their local currency in compliance with the host market’s rules and practices.

Payment through bank transfers remains a separate process and will follow the current practice within the respective markets. In addition, stocks are held on the host market central securities depository.

Future phases of the project may include automated cross-border payment systems, participation of additional ASEA member exchanges and their respective brokers and additional brokers from the current participating exchanges.

In November 2018, ASEA received a grant of $980,000 from the Korea-Africa Economic Cooperation Fund via AfDB to facilitate implementation of the project. The initial phase of the project involves connecting seven exchanges that control over 90 percent ($1.25 trillion) of the continent’s market capitalisation.

In East Africa Uganda, Rwanda and Tanzania have joined forces to implement a World Bank funded financial project that aims to connect regional stockmarkets electronically so as to operate as a single market with a view of reducing the cost and time of trading in shares of companies listed on markets across the borders.

The three countries interconnected their trading systems and hooked to the EAC Capital Markets Infrastructure (CMI) Information Technology (IT) platform.

This will see investors in the three countries buy and sale shares of companies listed in any of the countries without going through different stockbrokers.

Pakistan-based InfoTech Private Ltd had been contracted to provide the software connecting the trading platforms of the Uganda Securities Exchange (USE), Dar es Salaam Securities Exchange (DSE) and Rwanda Stock Exchange (RSE) to enable them to run as a single market in real time.

However, Kenya which runs the largest stockmarket in the region in terms of market capitalization and number of listed companies pulled out of the project in 2015 after expressing dissatisfaction on how the Pakistan firm was awarded the contracting citing procurement irregularities. Burundi, on its part, is expected to join the bandwagon once it sets up its own exchange.