Investment banks and stockbrokers seeking trading licences at the Nairobi Securities Exchange will now pay Sh25 million, easing market entry for traders whose predecessors paid up to Sh250 million for the right.
NSE chief executive Peter Mwangi told the Business Daily that with demutualisation which separates ownership and trading rights, the bourse had set a standard market access fee for both equity and bond trading.
“Once they are licensed by CMA (Capital Markets Authority) and apply to us for the trading licence we will admit them. They will pay us a market access fee of Sh25 million for a stockbroker or investment bank trading licence. For an authorised securities dealer, a category that only trades bonds, the fee is Sh1 million,” he said.
Previously, the fee for a trading licence varied, with Mr Mwangi saying that CBA Capital – a subsidiary of Commercial Bank of Africa – paid Sh40 million for the right to trade securities at the exchange in August 2013.
In 2008, Renaissance Capital paid Sh250 million for a seat at the stock exchange through an auction.
A seat meant that they bought both a stake in the exchange and a right to access the trading floor.
Equity Investment Bank, a subsidiary of Equity Bank, is reported to have acquired collapsed broker Francis Thuo and Partners Ltd for Sh150 million, which came with a full takeover of the firm’s shareholding and liabilities.
NSE is at present selling shares to the public, opening ownership beyond a few players. The high and varying costs previously attached to buying a seat was seen as a deterrent to attracting additional players and thus limiting the growth of capital markets.
Keep competitors out
Some licensed investment banks such as Barclays Financial Services, EIB and CBA Capital spent years trading through intermediaries due to the costly licences.
Stockbrokers who previously fully controlled the exchange were seen as determined to keep competitors out of the market by setting a high entry fee.
They, in turn, argued that lowering the fees would amount to short-changing those among them who had paid a much higher price to join. Three investment banks currently do not hold trading licences. They are KCB Capital, Barclays Financial Services and Ecobank’s EBI Investment Corporation Kenya Ltd.
KCB Capital earlier indicated it was eyeing a trading licence with an application likely by the end of this year, but it cited uncertainty over fees as a potential handicap.
“We are waiting for them to apply formally. To get the licences as investment banks from the Capital Markets Authority, they received a letter of no objection from the exchange,” said Mr Mwangi.
The relatively low licence fee for bonds traders could attract more players at a time when CMA is trying to expand the ratio of the corporate bond market turnover to total bond market capitalisation from the current 0.1 per cent to five per cent by 2016.
Attracting more players onto the trading floor could turn licensing into a consistent income stream for the exchange which, with public listing, will be under more shareholder pressure to make cash. Mr Mwangi said the NSE will not be seeking a review of market fees and commissions set by CMA.