Automation milestones: The changing face of Nairobi securities exchange

SBG Securities Limited’s chief executive Nkoregamba Mwebesa
NAIROBI, KENYA: Dealing in shares and stocks in Kenya started in the 1920s when the country was still a British colony. However, the market was not formal as there did not exist any regulations to govern stockbroking activities.

Trading took place on the basis of a “gentleman’s agreement”. Standard commissions were charged, with clients obligated to honour their contractual commitments.

At the time, stockbroking was a sideline business conducted by accountants, auctioneers, estate agents and lawyers who met to exchange prices over a cup of coffee. Because these firms were engaged in other areas of specialisation, the need for association did not arise.

“Dealers would meet at the Stanley Hotel in Nairobi to set prices for the day. Each one would go back to their office and then trade on the phone in what was known as a call over system,” said Mr Nkoregamba Mwebesa, SBG Securities Limited’s chief executive.

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In 1951, estate agent Francis Drummond established the first professional stockbroking firm. He also approached the then Finance minister of Kenya, Sir Ernest Vasey, and impressed upon him the idea of setting up a stock exchange in East Africa.

The two approached London Stock Exchange officials in July 1953 and they agreed to recognise the setting up of the Nairobi Stock Exchange as an overseas stock exchange.

“In 1954, the Nairobi Stock Exchange was formed as a voluntary association of stockbrokers, namely Francis Drummond and Dyer and Blair, and registered under the Societies Act,” said Mr Mwebesa.

Since Africans and Asians were not permitted to trade in securities until after the attainment of independence in 1963, the business of dealing in shares was confined to the resident European community.

At Independence, stock market activity slumped due to uncertainty about the future of Kenya.

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The first privatisation at the bourse was done in 1988, with the Government selling a 20 per cent stake in Kenya Commercial Bank.

On February 18, 1994, the NSE 20-Share Index registered an all-record high of 5030 points and was rated by the International Finance Corporation (IFC) the best-performing market in the world.

“The Government licensed more brokers, and a white board and open cry trading system was introduced,” said Mwebesa

In July 1994, the NSE set up a computerised delivery and settlement system (DASS).

In 1996, the largest share issue in the history of NSE, the privatisation of Kenya Airways, was held, with more than 110,000 shareholders acquiring a stake in the airline.

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On September 11, 2006, live trading was implemented.

“This is the time the exchange went fully electronic, although players were initially outraged and resisted the change,” said Mwebesa.

The East African Securities Exchanges Association came into being in 2004, following the signing of an agreement between the Dar-es-Salaam Stock Exchange, Uganda Securities Exchange and NSE. An MoU between the NSE and USE was signed in November 2006 to allow listed companies in Kenya and Uganda to cross list, facilitating the growth and development of the regional securities’ markets.

In February 2007, NSE upgraded its website to boost its data vending business, and in July the same year, reviewed its index and announced the companies that would constitute the NSE 20-Share Index.

A Wide Area Network (WAN) platform was implemented in 2007, eliminating the need for brokers to send their staff (dealers) to the trading floor to conduct business.

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In 2008, the NSE All Share Index (NASI) was introduced as an alternative index. Its measure is an overall indicator of market performance. Because it incorporates all the traded shares of the day, its attention is on overall market capitalisation rather than price movements of select counters.

The Complaints Handling Unit (CHU) was launched in August 2009 to bridge the confidence gap with NSE retail investors.

In December 2009, the NSE marked a milestone by uploading all Government bonds on the Automated Trading System (ATS).

In July 2011, the stock exchange changed its name to the Nairobi Securities Exchange Limited. The change reflected its strategic plan to evolve into a full service securities exchange that supports trading, clearing and settlement of equities, debt, derivatives and associated instruments.

In March 2012, the FTSE NSE Kenya 15 Index and the FTSE NSE Kenya 25 Index were made available on the NSE website, giving investors a reliable indication of the equity market’s performance during trading hours.

“Internet trading has been the latest addition to the overall automation process at the NSE,” said Mwebesa.

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