NSE unveils system to manage broker’s operations

By James Anyanzwa

Major stakeholders in the capital markets fraternity gathered in Nairobi to officially launch the operations of the much-hyped ‘Broker Back Office’ (BBO) systems they anticipate will halt irregularities in buying and selling of shares and rekindling investor confidence.

The automation of the back office operations of the trading participants of the Nairobi Securities Exchange (NSE) is a joint initiative of the NSE, the Kenya Association of Stock Brokers and Investment Banks (Kasib), the Capital Markets Authority (CMA), and the Central Depository and Settlement Corporation (CDSC).

The launch of the system means malpractices that stockbrokers’ engage in behind the scenes – including unauthorised selling of clients’ shares – could now be a thing of the past as the capital markets industry enters into a new era of transparency and integrity.

BBO is one of a series of radical reforms crafted by the Government and the markets regulator – CMA – aimed at restoring sanity in a market that has suffered massive exodus of retail investors in the hands of unscrupulous stockbrokers.

These reforms included creation of CMA’s anti-fraud unit, introduction of SMS investor alert on stock changes, creation of the NSE Complaints handling unit, increased investor education campaigns, and increased surveillance on stockbrokers operations, among other reforms.

Short selling

The NSE has also phased out and ceased the trading of equities on the Prompt Board to curb serious malpractices such as price manipulation and short selling.

“BBO is an affirmative step that the capital markets players, and industry as a whole, has taken towards achieving international best practice,” said Bob Karina, vice chairman of the NSE.

The BBO system will also allow Kenyans in the Diaspora to access the stock market.

Stepping up

“Now, the entire process of trading in securities listed on the NSE is supported by IT, from inputting an order, to processing the order, to making payment and transferring the securities to the new owners.”

The BBO software was procured from India’s Chella Software Private Ltd (Chella), a leading vendor for large financial services firms in securities broking, investment management, market risk management and treasury operations. The Sh75 million systems have been integrated in the management and accounting information systems of the brokerage firms.

Quick detection

Under the new system purchases or sell of shares, including payments and receipts of cash on similar shares by stockbrokers and investment bankers will be automatically tracked by market regulators – CMA, NSE and CDSC. This means suspicious transactions will be quickly detected and investigated, thanks to the BBO.

The search for a new BBO system was informed by the need to improve electronic securities trading and seal loopholes which fraudsters use for illegal transactions. Brokers and investment bankers will now use BBO to accept the buy and sell orders from investors, executed electronically. A stronger back office system is expected to go a long way in reducing mistakes and reduce the settlement cycle in the market.