The Nairobi Securities Exchange draws the bulk of its revenue from levies on trading activity, meaning that its bottom line suffers whenever the market hits a rough patch.
The net profit of the Nairobi Securities Exchange (NSE) fell by 54 per cent in the six months to June 2016 to Sh81.9 million as the bourse paid the price of a downturn in the market that has seen investors reduce their trading activity.
The NSE draws the bulk of its revenue from levies on trading activity, meaning that its bottom line suffers whenever the market hits a rough patch like has been the case since March last year.
The equity turnover in the bourse for the first half of this year fell by 31 per cent to Sh147 billion from Sh213 billion over the same period last year, and was directly responsible for the decline in the NSE’s income by 17 per cent to Sh334.3 million from Sh401 million last year.
“The period witnessed reduced equity trading volumes from foreign investors as well as subdued activity from local retail and institutional investors,” said NSE chief executive Geoffrey Odundo in a statement.
“Income from equity transactions levy declined by 31 per cent from Sh255.7 million for the first six months in 2015 to Sh176.7 million in 2016 owing to the reduced trading activity.
“Income from the bond transactions levy improved by 39 per cent from Sh13.2 million for the six months to June 2015 to Sh18.4 million for the period to June 2016.”
Other than trading transaction levies, the NSE also earns income through annual equity and fixed-income listing fees charged on listed firms and bonds, data vending, interest income, rental income from its building in Westlands and broker back office fees.
In the six months to June, the annual listing fees stood at Sh42.8 million from Sh40.7 million last year, data vending brought in Sh12 million from Sh11 million in 2015, broker back office fees stood at an unchanged Sh12.24 million and rental income amounted to Sh10.3 million compared to Sh13 million the previous year.
The NSE had expected to be earning additional income from derivatives trading during the second quarter of the year, but the launch was postponed to later in the year in order to allow brokers more time to learn the derivatives system and also to allow for public education on the new instruments.
The exchange has been investing heavily in the derivatives market, including capitalising part of its cash reserves (Sh260 million) through a bonus share issue in order to raise the paid-up capital to Sh1 billion in order to meet the minimum requirements to operate a derivatives market.
In the second half of the year, the outlook for the market remains grim, which would put further pressure on the earnings of the NSE.
“Going into the second half, we expect performance to remain subdued due to the delayed launch of the derivatives market as well as continued reduced equities trading activity,” said Standard Investment Bank in a note on the NSE results.
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