NSE tests new system with eye on futures market licence

The Nairobi Securities Exchange (NSE) has started testing a new IT system for trading currencies and other commodities, bolstering its bid for a licence to set up and run Kenya’s first futures market.

The NSE has partnered with a South African firm that designs trading systems, Securities Trading & Technology, to customise a system that can be used by local brokers.

Donald Ouma, the NSE’s head of market and product development, said the system is part of the bourse’s plan to win a Capital Markets Authority (CMA’s) licence to run the proposed futures exchange.

The CMA recently released regulations and requirements for companies that wish to set up a futures exchange in Kenya.

“We are running parallel with the CMA’s regulations on running a futures exchange,” Mr Ouma told the Business Daily.

The NSE hosted stockbrokers on a training workshop between July 4 and 5 to enable them have a feel of how the system works.

“Further to the forum, the NSE intends to carry out a simulated market training. We believe the market simulation will be a valuable experience for the various stakeholders as well as significantly help the exchange in its preparations to go live,” said NSE chief executive Peter Mwangi in a letter, dated June 7 sent to brokers, investment banks, fund managers, commercial banks and insurance companies.

The next step will be simulation of active trading by stockbrokers, said the letter from NSE.

Securities Trading & Technology’s system is already compatible with NSE’s system. The South African firm provides the futures trading platform for the Johannesburg Stock Exchange.

Setting up of a market for trading commodities and currencies gained momentum with the gazetting of a legal notice by Treasury secretary Henry Rotich on June 18.

The Kenya Association of Stockbrokers and Investment Bank (Kasib), industry’s lobby group, argues that a local firm is best placed to be granted the licence.

“Derivatives trading will always make five times more than any stock exchange,” said Kasib’s chief executive Willie Njoroge.

To better position itself for the new opportunity the NSE has joined the Association of Futures Markets, a Budapest-based organisation that helps in the development and establishment of derivatives and related markets globally.

The CMA requires that the company running the futures exchange should have a minimum capital of Sh1 billion and at least 15 per cent local ownership, two requirements that will open bidding to foreign competition.

READ: CMA sets Sh1bn capital for futures market

The NSE had Sh22.2 million in share capital as at December 2011 but had accumulated Sh408 million in reserves.

In the past industry experts have suggested that technical experience should be given priority over financial strength while an insider, who declined to be named, said that the local ownership rule is unnecessary.

The market player, who did not want to be named discussing regulations, said the 15 per cent rule is meant to give locals a stake in cases where they would otherwise be locked out.

Local firms would have the advantage of staff that are familiar with the market, the biggest assets in this line of business, the source said.