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Kenya: With Technology, Buying Shares At Stock Exchange a Simple Affair
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The Nation (Nairobi)
ANALYSIS
22 March 2008
Posted to the web 21 March 2008
Andrew Limo
Nairobi
The Safaricom IPO (initial public offer) will keep everyone listening to technology. Applications for the 25 per cent stake that the Government is offloading in the telecommunications firm is expected to increase the number of the central depository system (CDS) account-holders at the Nairobi Stock Exchange from 800,000 to three million.
For the first time, an option has been made for people to apply through the internet. This means that people who go online will have the advantage of avoiding the long queues.
On the part of the stock exchange and the brokers, an electronic application system means faster processing of application forms. If it all goes without a technical hitch, many people will come on board the digital world in future transactions.
Technology will be touching people in a new way - in money matters. And money indeed matters.
The NSE, which has been growing steadily since 2003, introduced the automated trading system in 2004 when it became apparent that human limitations were getting in on the way it operated.
I guess it was not easy to know who said what in the open-outcry method of buying and selling shares, which was conducted by the ladies and gentlemen in red.
The open-outcry system was discontinued and the automated trading system (ATS) took over. Because the brokers were able to connect to the NSE through a wide area network (WAN), they started operating from their offices.
Before the ATS, they had automated to a LAN (local area network), but this restricted operations on the NSE trading floors even though the open-outcry method had been discontinued.
Another disadvantage of the old manual system was that it took up to a month to create a new certificate; a settlement period that was not acceptable, especially to the foreign investors. With technology, this is now a five-day business and there are efforts to reduce it to three days.
The market is moving towards an instant transactions environment, or what is called delivery versus payment (DvP). The use of the automated trading system or CDS, which President Kibaki officially launched in October 2006, meant that shares were no longer in paper certificate formats, but were "demobilised" into electronic CDS.
The CDS trading system was introduced to replace the old gentleman's rule of trading-previously agreeable among the 18 brokerage houses. The system authorises CDS agents (brokers) to trade on their behalf in the new technology.
But the new practice does not face out stock brokers who are still needed to safeguard the interests of investors and give direction on recommended purchases. They also advise on fundamentals to be factored into transactions. This is still the practice even in developed markets.
So with technology, velocity and volumes increased and soon turnover and deals in the market tripled. Investor numbers rose from 500,000 to 800,000.
But even with an efficient market, it is not possible to rule out foul play by brokers who may want to take advantage of the fact that the client no longer walks around with a paper certificate.
This is a problem that must be anticipated when a system is partially automated. There is a need for a tracking mechanism to ensure the client sees what is happening behind the scenes, and technology can just give that.
For example, shareholders do not have to wait for a month to access their statements, as has been the case with the manual system.
Some people are quick to point an accusing finger at technology when they face problems, such as in the case of Nyaga Stock Brokers, who have been accused of selling investors' shares without their consent.
Technology can only be as good as people who feed it with information. It can be used or misused.
If used properly, technology reduces errors and helps in tracking business in the stock exchange.
With this innovation, applicants in the diaspora do not have to be physically present to participate. They can open their accounts online and use electronic money transfers to wire cash directly to the receiving banks and brokers.
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There is a website being developed solely for this huge offer (www.ipo.co.ke). People who have access and the know-how will be running on steroid at cyber cafes, offices and homes.
Those who cannot will be battling it out on manual paper-based systems at the other end of the digital divide.
Whichever way you look at it, technology will in the long run empower individuals to do things by themselves. The role of intermediaries is waning everywhere.
That was a great article very educative.With increased accessibility to the Net more Kenyans can buy and sell shares.And with the completiön of the fibre optic project,life will önly get better.
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