Capital Markets

NSE banks on day trading to deepen market

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A stockbroker at the Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

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Summary

  • The Nairobi Securities Exchange (NSE) will introduce day trading from next month to deepen capital markets, where turnover and trading activity has remained flat in recent years.
  • The NSE said on Tuesday it had received approval from the Capital Markets Authority (CMA) for the roll out of day trading on 22 November.
  • Day trading refers to the practice of purchasing and selling a security within a single day or trading session or multiple times over the course of the day.

The Nairobi Securities Exchange (NSE) will introduce day trading from next month to deepen capital markets, where turnover and trading activity has remained flat in recent years.

The NSE said on Tuesday it had received approval from the Capital Markets Authority (CMA) for the roll out of day trading on 22 November.

Day trading refers to the practice of purchasing and selling a security within a single day or trading session or multiple times over the course of the day.

Trades are handled by the Central Depository and Settlement Corporation (CDSC), which provides clearing, settlement and depository services for listed securities.

NSE chief executive Geoffrey Odundo said day trading would boost liquidity at the bourse, which has 65 listed firms where telcos and banks dominate trade.

“Day trading is a welcome move for local investors who have previously lobbied for the activation of the intraday trading, as they seek to take advantage of intraday price movements and increase their profit margins,” said Mr Odundo.

“We are confident of a bullish market performance going forward.”

Experts say same-day trading and settlement would deepen liquidity on the bourse.

Successful day trades are seen as lucrative since they could turn a quick profit for investors.

“Day trading will allow investors to trade on one position, two or three times per day,” said NSE Chairman, Kiprono Kittony.

“This will significantly increase our turnovers and attract more investors to the bourse, further entrenching the NSE as an innovative and transformational Exchange in the region.”

In 2019, the NSE, launched derivatives also in efforts to boost liquidity.

Derivatives are an investment tool whose value is derived from an underlying asset like bonds, commodities, currencies, interest rates, market indexes and stocks based on the expected future price movement of the asset.

They allow investors to make a gain or hedge against losses by taking a bet on the future price movement.

To boost uptake of day trades, the NSE said it will introduce an incentive structure whereby investors who participate in day trades will receive a discount on the second leg of the transaction which will be levied at 0.114 percent compared to normal trades which are levied at 0.12 percent.

“This benefit will be enjoyed by the investor directly through their trading accounts,” said the bourse.

“The successful roll out of the new initiatives is tipped to firm up the rebound of the NSE after the drastic impact of the Covid-19 pandemic.”