Equity Investment Bank’s partnership with UK’s Exotix Partners helped push it up the ladder in 2015, leaving it among market leaders with strong foreign trading desks.
EIB ended 2015 with a 13.84 per cent share of the Nairobi Securities Exchange’s Sh418.76 billion worth of trades –reported as a turnover of Sh209.38 billion in actual cash changing hands— behind market leader Kestrel Capital’s 16 per cent and SBG Securities’ 14.97 per cent.
EIB had 4.49 per cent market share in 2014, ranking the firm eighth among the 19 brokers who traded in the bourse. The firm entered into the partnership with Exotix in August 2014.
“The partnership with Exotix has given us a stream of foreign investors. Without them you don’t get much share of the business in the Kenyan market, taking into account that they accounted for over 60 per cent of the total trades last year,” said EIB head of brokerage Muathi Kilonzo.
“Therefore, we have been able to get in 18 months the market share that normally takes five years to achieve. Local fund managers have also shown trust in us to execute their business.”
He added that the block trades the firm executed in the second quarter of the year when Helios Partners was selling off its stake in EIB’s parent company, Equity Holdings, helped boost turnover numbers, even though other stockbrokers also handled some of the Helios transactions.
The top six stockbrokers cornered 76.5 per cent of the market, compared to 71.5 per cent in 2014. Their increased share has been attributed to the dominance of foreign investors in the market last year (61 per cent) compared to 2014 (51.1 per cent).
Kestrel consolidated its position as the top broker in the country after taking over the top position in the bond dealing business from Dyer & Blair, adding to the top position in equities.
The firm dominated the market with a 24.81 per cent market share in bonds trading ahead of Dyer & Blair, whose 12.77 per cent share represented a major fall from 2014 when it had 27.14 per cent of the market’s total turnover.
“On bonds, we saw some competition decline and our procurement of clients increase. In equities, we managed to retain our number one ranking but are seeing growing competition from primarily foreign related brokers like Stanbic (SBG Securities), Renaissance Capital, Exotix/Equity Bank, and African Alliance,” said Kestrel Capital chief executive officer Andre DeSimone.
Kestrel’s equity market share, while still the largest in the market, represented a decline compared to 2014 when the firm accounted for 17.8 per cent of all equities traded.
Other firms in the top six which saw market share declines were Standard Investment Bank and Renaissance Capital.
Faida Investment Bank (FIB) was the big mover in the bonds segment, clocking 11.04 per cent in market share from 7.31 per cent in 2014.
FIB poached bond traders Norris Kibe and Gibson Gichaga from Dyer & Blair in June, a move that resulted in Dyer’s bonds desk grinding to a near halt in the second half of the year, costing the firm market share as FIB moved up the ranking.
SBG Securities also gained a sizeable share of the bonds pie after seeing its share rise from 7.41 per cent in 2014 to 11.1 per cent last year.
Overall turnover in the bonds market was, however, down last year at Sh305 billion compared to Sh506 billion 2014, attributed to the rising interest rates which meant that many investors were unwilling to sell their bonds in the secondary market since it meant they would be selling at a loss.
In equities, the turnover was adversely affected in the first quarter of 2015 by the reintroduction of capital gains tax that caused controversy over the implementation modalities thus causing investors to shy away from trading.
The significant fall in bonds turnover combined with the slight decline in equities turnover means therefore that stockbrokers can expect lower commission earnings for the year.
Stockbrokers earn between 1.5 per cent and 2.1 per cent in commission per trade at the NSE, and 0.035 per cent per bonds trade. Large investors, however, negotiate for discounts, which the brokers offer as an incentive to keep hold of deals.
In addition, FIB chairman Bob Karina told the Business Daily that some of the larger deals by institutional investors were movement of stocks between portfolios by fund managers, which carry lower commissions.
“Generally, these were movements from one book to another for fund managers and normally the commission for these transactions is very low because it’s the same customer so it does not reflect the business,” said Mr Karina.
Earnings are also likely to be strained further by rising costs, coming from increased competition for talent as the market develops.
According to Mr DeSimone, the stockbrokers have seen higher marketing, research and compliance costs and information technology.
The introduction of new products in the market such as Reits and the soon to be launched derivatives have also put an onus on stockbrokers to spend more on training their staff and hire experts for these specialist areas.
These new products however present an avenue for additional revenue for the intermediaries.
“We are all counting on growing trading volumes as a rising tide that lifts all boats. That means new issues and new products on the NSE to trade. Regarding 2016, we hope with interest rates and the currency under control that trading will pick up by mid-year especially after full year 2015 results are announced,” said Mr DeSimone.