3 January 2014

Kenya: NSE's Automated Share Trading System Delayed

INVESTORS in shares trading at the Nairobi Securities Exchange will wait for at least a year before the reduction settlement cycle from the present three days could begin.

Central Depository and Settlement Corporation has ruled out change in equity settlement cycle this year, although it expects to complete upgrade of the seven year old automated trading system and central depository system by end of third quarter in September.

The upgrade of the aging ATS platform, implemented by Sri Lanka's Millennium Information Technologies at a cost of Sh70 million in 2006, is expected to reduce technical hitches that grounded trading at the NSE severally last year.

The hiccups, that occurred two times last October alone, cost the market at least Sh500 million in trade losses whenever it goes on for an entire trading day as was the case on October 29, according to estimates by analysts.

The CDSC had said when it announced planned upgrade of the CDS in August that the new system will,among other services, facilitate collateral management, day trading, settlement services for government securities and regulatory environment that will enable lending and borrowing of securities.

Chief executive Rose Mambo however said in an interview on December 5 the settlement cycle will remain intact in the foreseeable future including 2014 to the least.

It presently takes at least three days to complete a transaction in share trading in what is referred to as T+3.

The present cycle which is nonetheless matches global standard practice was set in 2011.

Mambo said while T+2 could be possible in future, T+1 was extremely challenging due to time differences in various countries that affects trading periods.

"Where you have foreign investors in your market, it is always difficult to manage T+1 because of all confirmations and payments that need to be done," she said. "All the post-trade arrangements would be a challenge and I don't see as moving there in a foreseeable future."

This could upset some dealers who had hoped the cycle could gradually change with installation of the new ATS platform.

Standard Investment bank director Amish Gupta had in an interview on November 21 said the settlement should be reduced to T+2 this year and eventually to T+1 thereafter.

According to data from the NSE, stock market returns stood at an average of 19.21 per cent for the year 2013 with turnover rising 79 per cent to Sh155 billion.

Although the value of bonds reduced 14 per cent to Sh453 billion from Sh530 billion in 2012, the NSE grew its wealth by Sh650 billion to Sh1.92 trillion in 2013 from previous year's Sh1.27 trillion.

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