TELL Magazine

Stock Floor

The transformation could not have come at a better time. Indeed, expectations are rife that the X-Gen platform, an information technology, IT-driven innovation, introduced by the Nigerian Stock Exchange, NSE, and Securities and Exchange Commission, SEC, with the support of capital market operators, will more than previous initiatives make the Nigerian capital market more competitive at the global level.

The X-Gen trading platform is an independent and globally accepted communication mechanism for the exchange of stock trading-related information among regulators, market operators and investors. As the stock market migrates from its 14-year-old horizon programme to the new X-Gen platform, which is the fastest trading platform in Africa, the stock exchange, stockbrokers and investors now enjoy mobile and flexible access to securities. The platform enables stakeholders in the capital market to access market information via mobile gadgets like smartphones, notepads and laptops regardless of location.

Following the introduction of the X-Gen platform, many stockbroking firms are extending innovative online products to their clients. For instance, Bancorp Capital recently launched its online portal to attract more investors to the capital market, especially those who are becoming technologically savvy. The online portal, according to Aigboje Higo, managing director, MD, of the firm, is to create a platform for everybody to invest in their future by providing tools for the investments needed.

Similarly, Meristem Securities launched Meritrade, an online product that offers easy-to-use online stockbroking services at a competitive price to its existing and potential clients. According to Gbadunola Sokunbi, head, stockbroking Meristem Securities, Meritrade empowers individuals to take control of their financial future by providing tools and services needed to make it easier for them to communicate and monitor their investments with their stockbrokers. “We provide this service to customers either online or through our network of customer service representatives and investment professionals via an efficient electronic platform specifically designed for this purpose. It defines stockbroking in a different language and creates a world-class experience by bringing your broker to the comfort of your home and office,” she explained. Other firms that offer online services to their clients are Morgan Capital, Signet Securities and Afrinvest West Africa among others.

The process of opening such account is simple. “You need to scan and e-mail your driver’s licence or international passport and utility bills.  Once the documents meet the required standard, a staff would inform you that the account has been opened. Then you place an order and pay via online transfer to a designated account for stockbroking purposes and get a notification immediately,” Higo explained.

Although the firms offer similar services, their minimum fund requirements differ. While an investor is expected to have a minimum fund of N50,000 to start online trading with Meritrade, Ayoleke Adu, MD, Morgan Capital, disclosed that a minimum of N20,000 is required by his firm before an investor can enjoy online transaction. But Higo says a minimum of N1,000 is enough to start off at Capitol Bancorp. “We do not see any reason to review that yet,” he told the magazine.

Segun Meyungbo, an investor, described the new technology, which allows shareholders monitor the movement of their investments in the market via smartphones and tablets without any hindrance, as a welcome development because it allows him to monitor the growth rate of his investment on his palm. “The era where a shareholder needs to buy newspapers or wait for daily summary to posted by stockbroking firms is over. I can check the price movement of my shares via my phones without delay,” he told the magazine.

While Meyungbo applauds the regulators for introducing the new platform, Eric Akinduro, another investor, is optimistic that the development would attract more local and foreign investors to the market.  His reason is that the platform would aid investors to monitor price movements of shares listed on the exchange during trading hours without consulting market operators. “With this, an investor can instruct his stockbroker to buy shares on his behalf before the end of trading of the day. Particularly, foreign investors can study the trend of the market to know when to come in or exit,” he explained.

Unlike what is applicable when the market was using the horizon platform where investors had to wait for two or three days for operators to make their purchase or sales, all that can now be done in a day. Aside from investors who described the innovation as a step in the right direction, market operators are also delighted about the development. For instance, Abiodun Okundalaiye, MD, Kinley Securities, a stockbroking firm, said the innovation is a long-awaited technology. He explained that it is only trained and certified stockbrokers that have the password that can trade using the platform. “For an investor to partake, he must have a credited account with the operator. If he places his orders, his account with the house will be debited electronically and his Central Securities Clearing System, CSCS, account will be credited with the shares while the account of the buyer at the other end would be credited and his CSCS would be debited.

To Ade Bajomo, executive director, market operations and technology, NSE, the new platform would go a long way in restoring investors’ confidence in the market. He said apart from the need to create opportunities for operators to process market transactions anywhere and everywhere using various gadgets without barrier, the boundless access if offered would lead to higher level of price transparency and operational efficiency for both investors and operators.

The opportunities offered by X-Gen are not limited to access to market information. The goal of the NSE is also to attract more companies to be listed on the exchange and to increase the retail investor base, reaching out to investors in the rural areas in order to achieve $1 trillion market capitalisation. With this, the NSE is optimistic that it will move the market from frontier to emerging market status and fast-track its quest for membership of the World Federation of Exchanges, as well as its inclusion in the Morgan Stanley Capital International, MSCI, emerging market index. These new grounds are expected to reposition the market to compete with leading African markets like Ghana and South Africa.

The new trading platform is based on a number of leading technologies like NASDAQ OMX, X-Stream matching engine and a robust market database developed from scratch by the exchange and its technical partners. Also, unlike the horizon platform, the new platform supports trading of cash equities, bonds, Exchange Traded Funds, ETFs, and derivatives. “These technologies have been deployed on a highly optimised low latency network for trading on the floor of the exchange and remote broker-dealer offices based in Lagos and underpinned by efficient business processes. With this standard, Nigeria can attain its Vision 20:2020 leading the African market as other exchanges follow,” Bajomo.

As good as the platform seems to be, many stakeholders are yet to embrace the new technology but the NSE says it is educating investors while stockbrokers are encouraging their clients to key into the new system. Like every other technology-based operation, the X-Gen platform has its own challenges. Being an Internet-based technology, experts agree that poor network issues could create communication gap among investors, stockbrokers and the exchange. “Poor network can affect communication and transaction which may cause delay. Apart from that, operators may not be able to identify much hurdle for now until they begin to experience heavy traffic on the platform. However, most of them believe that the platform would solve more problems than the challenges being envisaged.

The X-Gen platform and other IT innovations in the capital market are products of the re-engineering of the capital market by Oscar Onyema, chief executive officer, NSE, who constantly assures both domestic and international stakeholders of a brighter future by making the stock exchange to be dedicated to operating a high performance, low latency, robust, scalable and flexible marketplace. “The exchange has always been focused on investing in technology, but with X-Gen our trading platform is now among the most advanced in the world and that further extends our leadership position in Africa. We have great confidence in the platform,” he said.

To attract more investors and increase liquidity in the market, the management of the exchange has in recent years, introduced several measures to reposition the capital market. In July 2012, for instance, it introduced the Lotus Islamic Index, NSE LII, to the market. The product was described as one that would lead to the rebirth, growth and transformation of the Nigerian capital market.

NSE LII, a product of Lotus Capital Limited, is the first index with a local partner created to track the performance of Sharia compliant equities traded on the floor of the exchange. The development, which has increased the variety of NSE index to seven, provides investors with varied investment opportunities and interests. Bola Adeeko, head, corporate affairs of the exchange, explained that the investment instruments like ETFs, which would be introduced in 2014, can be built on the Index, and that investors with a preference for Sharia compliant investments can invest in same.

The NSE LII is expected to further showcase the investment opportunities available to ethically minded investors, both in Nigeria and overseas. All the companies that will appear on the index have been thoroughly screened by Lotus Capital, in accordance with a methodology approved by a Sharia Board. Even after companies are accepted into the index, they will still be subject to periodic screenings to ensure their continued compliance.

To further deepen the market, the NSE also listed ETF worth N988 million in 2011. ETF is a form of investment instrument that provides numerous possibilities, on the floor of the exchange. Due to the volatility of the stock prices, ETF gives investors opportunity to spread investments, thereby lowering the risk of price crash by investing in a basket of stocks or commodities.

In February 2010, Arunma Oteh, director-general, SEC, which regulates the capital market, disclosed that priority of the commission was to build a world-class market that would restore investors’ confidence, provide adequate product offering, transparent market disclosures, accountability and corporate governance. “We are going to re-energise the agency, institute significant internal reforms and refocus on our core mission of protecting investors. To achieve these, there would be a well-articulated functioning capital market that is essential to Nigeria’s economic development,” she assured.

The management of SEC has also strengthened the agency’s regulatory functions by introducing a new code of corporate governance for quoted companies. Until then, the market was working with an old code introduced in 2003. The new code is expected to foster healthy competition among business institutions and economic development generally.