Nigerian and Ugandan stock exchanges could become more investor friendly

A recent Reuters article reports that the Nigerian Stock Exchange (NSE) will soon be completing a revamp that will see it relax restrictions on price swings, adopt the Nasdaq platform, open into US trading hours and allow short selling.

Ade Bajomo, executive director of market operations and technology, told the Reuters Africa Investment Summit in Lagos that the bourse would implement new rules allowing stock prices to move by up to 10% a day, from its current 5%, and introduce market makers who can borrow stocks for shorting. “What would we like to be when we grow up? I think Singapore,” he said. “A market that rises up from almost zero, a market run in an efficient manner … a financial hub.”

Under the new system to be implemented by next month, Africa’s second biggest bourse will open until 16:00 (15:00 GMT) to overlap with US markets. It currently shuts by 14:30.

A US$10 million deal with Nasdaq to adopt its trading platform would be signed this week, making it easier for foreign and local investors to trade electronically, Bajomo said. The NSE is currently automated, but the technology is old and price rather than quote driven.

The new system will make the market more efficient, liquid and easier for traders to use, Bajomo said. “One of the key initiatives is market-making, securities lending and short selling,” he said. “We want to build a hybrid market, with market-makers to create liquidity.”

In related news, the Uganda Securities Exchange (USE) aims to double its market value in the next five years and is lobbying the government for tax incentives to encourage companies to list, its chief executive Joseph Kitamirike, said.

The east African bourse also plans to draw new listings through an alternative market for companies that don’t qualify for its main board, Kitamirike told Reuters. “We want to double our capitalisation within the next five years but there are not very many companies that qualify for the main market in Uganda,” he said.

The 14-year-old bourse is saddled with many of the constraints that characterise frontier Africa, where small, relatively illiquid capital markets have yet to catch up with robust economic growth. The bourse is home to just 14 companies, several of them cross-listed Kenyan firms, with a total market value of US$4.8 billion.

It was counting on a high-profile secondary listing of Tullow Oil this year to help bolster market value, but the oil explorer has decided to focus on other priorities, Kitamirike said.

“There’s the large sugar companies, plantation companies, steel manufacturers,” he said. “Some of the insurance companies, the banks. If we pick one or two of those every year we will probably be able to double our capitalisation on the exchange within that period.”

We laud the NSE’s efforts to increase trading efficiency at the exchange; believing that it will go a long way in improving activity on the bourse. Likewise, the USE’s efforts to encourage more companies to list will give investors more options hence making the market more attractive, and thereby allowing investors access to the economy’s broader economic growth.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.