The Nairobi Stock Exchange has signed an agreement with global market performance tracking company—FTSE—that will see the bourse gain new revenues by selling data to international investors, and spur more foreign investor interest.
Under the agreement that is still in the development stage, FTSE International and the NSE will create new FTSE/NSE share and bond indexes that will be marketed to millions of international investors who monitor FTSE indices around the world.
The partnership is expected to open new income streams for the bourse through selling of premium market data to investors, while local buyers are likely to benefit from higher liquidity that comes with more exposure to international buyers.
“We believe this partnership will lay the foundation for the creation of data products, electronic traded funds (ETFs) and other index based products and will further attract enhanced foreign investment in the local market,” said Terrence Adembesa, product development manager at the NSE.
News of the partnership comes days after the bourse said it was in the process of introducing a local bond index to track performance of fixed income securities.
The NSE said the new bond index will be initially constituted of treasury bonds.
FTSE Group is involved in the creation and management of over 120,000 equity, bond and alternative asset class indices according to information on its official website.
The firm is jointly owned by the London Stock Exchange and the Financial Times, and its indices are used by a range of investors such as consultants, asset owners, fund managers, investment banks, stock exchanges and brokers.
It has offices in London, Frankfurt, Hong Kong, Beijing, Shanghai, Madrid, Milan, Mumbai, Paris, New York, San Francisco, Sydney and Tokyo, with partners and clients in 77 countries worldwide.
Mr Adembesa said the indices — which are expected to come into the market in the third quarter of this year— would also help diversify the NSE’s revenue streams and enhance the value of the bourse’s brand internationally.
“The agreements have been firmed up within the technical teams for both FTSE and NSE and are awaiting board approvals,” said Mr Adembesa at the NSE adding that finer modalities on the equity and bond index constituents, weighting and calculation is still being worked out.
The NSE said they were considering developing the bond index, an equity index, equity sectoral and finally shariah index series.
Mr Adembesa said they hoped the partnership would work towards developing an East African index series as well while maintaining the NSE 20 share and NSE All Share indices.
Volatility of the market has seen financial performance of the stock exchange fluctuate in recent years, making it necessary for the bourse to create new income streams.
The NSE made a Sh35.8 million loss after tax for the year ended December 2009 compared to a Sh59 million profit after tax for a similar period ended December 2008.
Total income was Sh184.5 million and Sh328.4 million in 2009 and 2008 of which 89 and 95 per cent or Sh164.3 million and Sh310.7 million respectively came from transactions levies, annual listing fees, initial listing fees and application and additional listing fees.
Other income —consisting of advertisement, data vending and sale of publications and merchandising items, contributed six and two per cent or Sh10.3 and Sh5.9 million respectively for both years — an indication of the NSE’s heavy reliance on activity at the bourse.
The law mandates 0.12 per cent of the value of all equity transactions and 0.0035 per cent of the value of bond transactions at the bourse to go to the NSE.
“On one hand it is another step to vending data. Stock exchanges internationally not only make revenue from fees but they also from selling the information,” said Kestrel Capital’s executive director Andre Desimone who added that having an international index would add confidence and acceptability among international investors.
“It would also allow international investors to benchmark and compare the performance of other markets with the Kenyan market and exposes Kenya internationally,” he added.
Mr Adembesa said that the NSE would benefit from the partnership through cost savings in respect to index management and distribution and would opens new revenues streams from sales and licensing opportunities.
He added that adopting FTSE’s global index methodology would attract enhanced international investment into the local market and NSE staff would be able to share and knowledge transfer through exposure to FTSE’s calculation systems and global distribution network.
“I think this is a welcome development since we are getting more international investors. It will give them something that they are more familiar with,” said Paul Mwai chief executive Africa Alliance Investment Bank adding that the move paves the way for the introduction of an ETF which is an index that tracks the basket of shares in an index but is listed on an exchange.