Capital Markets

How fractional share ownership will work

Geoffrey

Nairobi Stock Exchange (NSE) Chief Executive Geoffrey Odundo. PHOTO | POOL

The Nairobi Securities Exchange (NSE) recently announced the introduction of fractional investing in Kenyan stocks, a move that will allow smaller investors to buy shares with less money than previously required.

Fractional investing allows people to buy less than a whole share of a stock or security, opening up access to stocks that would otherwise be out of reach due to a high nominal price.

For instance, given that the NSE only allows minimum trades of 100 shares on its market platform, a share priced at Sh500 would require a minimum outlay of Sh50,000 for someone looking to buy into the company.

READ: NSE sheds Sh182bn after Supreme Court ruling

This high entry barrier for some stocks has locked out investors who struggle to raise the minimum purchase cost.

Mr Geoffrey Odundo, the chief executive of the Nairobi Securities Exchange, told Business Daily that Kenya’s fractional investing is expected to be modelled on South Africa’s EasyEquities platform.

In this case, stockbrokers or fund managers buy and hold shares. They then accept small investments from clients, which represent a fraction of a single stock.

The investors are not known to the listed companies but have exposure and claims against the market intermediaries in terms of their portion of price movements and dividends on the stock.

The investors have no voting rights. As they make further investments and ultimately end up with a whole share, the contract with the intermediaries ends and ownership of the whole share is delivered to the customer.

Mr Odundo said the market infrastructure is ready to roll out fractional investing. Besides boosting ownership, the model is also expected to increase trading and ease the persistent low liquidity in the Kenyan stock market.

Hisa App is the first mobile app that got the first nod from the Capital Markets Authority (CMA) and the NSE to facilitate fractional investing, with the approval opening the market and other brokerage firms for fractional trading.

Hisa expects to roll out the service before the end of March 2023.

An upgrade on the NSE system is also going to support trading in odd lots –blocks of shares below the minimum of 100 per trade.

The system also allows banks, fintech and brokerages to add Application Programming Interfaces (API) and new functionalities with the support of high-tech software solutions.

ALSO READ: NSE is Africa's third worst performing stock market

“NSE has the infrastructure but one has to build the fractional element on top of their APIs. We are able to support the trading with better software, and integration with NSE and CDSC,” said Erick Asuma, co-founder and chief executive of Hisa.

The company, which will charge a fee of one per cent of the value of a trade, says it will start with “high-priced” stocks such as BAT Kenya and East African Breweries.

[email protected]