Capital Markets

NSE to upgrade its automated trading system


Dyer and Blair equity dealers Sheema Shah (second right) and Solomon Omundo explain the live trading to CBK deputy governor Haron Sirima (second left) and I&M Holdings chairman Daniel Ndonye during the bell-ringing at the listing of the I&M Holdings on the NSE on June 25, 2013. Photo/FILE

The Nairobi Securities Exchange is set to upgrade its IT system as it seeks a more robust platform to support planned diversification to trading a raft of new securities including derivatives and futures.

The Kenyan bourse is also seeking to introduce real estate investment trusts and exchange traded funds, which require a more sophisticated IT trading platform.

In a statement, the NSE said it intends to procure an automated trading system (ATS) that is inter-operable with the Central Depository System, a government bonds system and brokers’ back office systems (BBO).

“Predominant users of the ATS system will include traders and dealers from 19 broker firms, licensed Authorised Securities Dealers and Match Markers, while assets tradable on this platform should include Equity, Fixed Income (BONDS), Real Estate Investment Trusts (REITS), Exchange Traded Funds (ETFs) and Derivatives,” said the NSE in a statement.

The current system being used by the exchange was installed in 2006 and is already linked to the brokers’ back office systems, the central bank’s system for treasury bonds trading and the Central Depository System, which stores all shares in electronic accounts.

The system matches trade orders automatically and ensures they are concluded on the basis of first come first served.

READ: Brokers count gains of online shares trading

The NSE did not disclose when it expects the new system to be operational but it only opened a one-week period for companies interested in supplying the new system to submit their bids.

The system will support the 19 licensed brokerage firms from whom NSE earned Sh12.4 million last year for supplying them with the trading platform. It will also be expected to host match makers who are currently not present in the Kenyan market.

Match makers buy and sell bonds from their clients at disclosed prices, creating liquidity in the market and getting a return from the price differentials.

In July this year NSE said it had started testing a new IT system for trading currencies and other commodities in partnership with a South African firm, Securities Trading and Technology.

READ: NSE tests new system with eye on futures market licence

The South African firm was to customise a system that can be used by local brokers and its system was said to be already compatible with the NSE’s system. Securities Trading & Technology provides the futures trading platform for the Johannesburg Stock Exchange.

The current NSE system was acquired from Sri Lankan company Millenium Information Technologies which had also supplied the Central Depository System. Following the automation trading hours at the bourse were extended by an hour and the trading of rights in the same manner as equities was introduced.

Automation helped bring transparency in the Kenyan equity market and liquidity in the secondary trading bond market. A year after automation of the secondary bond trading in September 2009 the turnover in the bond market increased to Sh392 billion compared to Sh110 billion an year earlier.

Trading activities at the bourse are expected to rise with the introduction of the GEMS segment which will push the number of quoted companies up from the current 54 due to the lax listing requirements.

Regulations on derivatives, futures, and the listing and trading of REITS are currently being debated before they are gazetted for their trading to start on the bourse.

The exchange also aims at being able to host other bourse markets on its platform a move that comes in the wake of harmonisation of trading guidelines among east African countries.

The system is expected to strengthen market surveillance stamping out any concerns of insider trading. Last year the regulator, capital markets authority launched a market surveillance system that is meant to flag out irregular trades.

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