The Nairobi Securities Exchange (NSE) now plans to introduce a new trading platform by December 31, 2024 that will allow retail investors to buy a percentage or share of a stock instead of paying the full price.
Under the new scheme, known as fractional investment, an investor would be allowed to choose several shares of listed companies instead of putting all their money into one company's stock to buy a certain number of whole shares.
Currently, one must hold a whole share, with the minimum number of shares to be purchased for any counter in the market being 100 -- a provision that the NSE says has been prohibitive to the growth of the market because it limits access to stocks, especially those with high nominal prices.
For example, under the current system, an investor needs a minimum of Sh35,400 to buy high-priced shares in BAT Kenya. This could change under the fractional trading system, where an investor can buy only a portion of BAT Kenya stock.
“There is an entity that is already several steps down the road. We have had engagements with the Capital Markets Authority and they have started the piloting aspect of it and the conversation is now about when to start,” Frank Mwiti, NSE’s chief executive officer, told the Business Daily.
“Fractional trading will be a game changer. There is a lot of liquidity sitting in our market and cannot come to a lot of counters because of the structuring of our market on issues such as minimum lots and ticket size.”
The NSE first hinted at the introduction of fractional trading in December 2022. However, the venture failed to take off as the exchange refocused its attention on day trading.
“We have counters where the shares are very closely held and whereas there is huge demand for them, there is no supply. We want to enable investors who do not necessarily have big tickets to be able to come to the market. If you have Sh100, you should be able to still come to the market and that is why we are enabling fractional trading among other aggregation-type trading strategies. It has worked very well in India and South Africa,” Mwiti said.
The NSE will be benchmarking against India and South Africa as it moves into fractional trading.
Buying fractional shares can be beneficial in several ways, including affordability and diversification. For example, in terms of affordability, you don't have to wait to accumulate huge amounts of cash to buy the amount of shares you want. You can start investing in many fractional shares with the small amount you have available.
The fractional investment method also has the advantage of diversification, as you can choose several stocks to invest in with the small amount of cash you have.
Fractional shares may not provide an immediate return to the individual investor because of their small size, but investing over months or years could allow the piecemeal purchase of shares to build up, possibly into several full shares in several stocks.
