Capital Market operators woo investors with digital trading
Regulators and operators of the Nigerian capital market are taking the market to the high-tech platform – mobile phones, laptops and other internet-enabled electronic devices. The emergence of these online mobile portals has potential to deepen domestic participation in trading, reports, Capital Market Editor TAOFIK SALAKO.
The facts are startling! Less than three per cent of Nigerians are participating in the stock market and
less than 0.2 per cent of the population has never invested in collective investment schemes (otherwise known as mutual funds). In fact, foreign investors dominate transactions on the stock market. Yet, more than half of the population is classified as educated and urbane.
Going by the capital market penetration and participation data of both the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE), as well as other stakeholders’ groups, there is a consensus that there low participation of Nigerians in the capital market.
On the contrary, Nigerians are atop the list of mobile phone and internet users globally. A report by the Nigerian Communications Commission (NCC) showed that in December 2015, there were 151.02 million active phone lines in the country. These include: 148.68 million mobile GSM lines, 2.15 million mobile CDMA lines and 187,155 fixed wired/wireless lines.
The report put Nigeria’s teledensity at 107.87 per cent, showing a marked increase against total active lines of 139.14 million and teledensity of 99.39 per cent recorded in 2014.
Wikipedia has ranked Nigeria seventh on the global list of countries going by the number of mobile phone users with a connection rate of 94.5 per cent.
The country’s internet usage is the highest in Africa, almost twice that of Egypt, Nigeria’s closest in Africa. Internetworldstats.com in its latest ranking, indicated that Nigeria has more than a quarter of Africa’s total internet usage with more than 51 per cent of its population having access to the internet.
According to the global internet monitoring platform, Nigeria has 92.7 million internet users, representing 51.1 per cent penetration and 28 per cent of Africa’s total internet usage. Egypt, the closest to Nigeria, has 14.6 per cent of Africa’s internet usage, while South Africa controls 8.1 per cent.
An International Data Corporation (IDC) report has predicted a rise in the expenditures of corporate, government establishments and individual users of internet technology (IT) in Nigeria to more than $5.6 billion in the course of the year as institutions and individuals continue the race toward digital transformation.
Capital market authorities and operators have launched efforts aimed at leveraging on the active internet usage to leapfrog domestic capital market participation through seamless, online access to capital market data and transactions.
No fewer than 10 stockbroking firms have launched online stock trading portals that allow investors to create stockbroking accounts, fund the accounts and trade online- real time at the stock market.
Among the firms are GTI Securities Limited, Investment One Stockbroking International Limited, Meristem Securities, CSL Stockbrokers, Capital Bancorp Plc, Lead Securities Limited, Morgan Capital Limited and Afrinvest Securities among others.
Real time, online trading
Though the online portals comes in different names according to the brand essence of the originating firm, they come with similar concept and features.
The cutting edges have been additional security features and smoothness of the access and procedures.
As a prototype, Investment One Stockbrokers International’s online portal, known as ‘Easy Trade’, allows investors to buy and sell stocks directly on the floor of the NSE, besides the access to real time market data and back-up research and analyses.
The sign-on fee is a one-off payment of N1, 000 and investors can open account and trade with any amount. The platform enables clients to manage their stockbroking portfolios on mobile devices, tablets, laptops and desktop computers.
The 24-hour connectivity to the portfolio is complemented by access to the company’s online customer support through online chat functionality, so that clients can talk directly to the customer service team who will manage their enquiries.
‘Easy Trade’ provides investors with two options of direct market access to the trading engine at the NSE, which is best suited for savvy investors and alternatively, to allow clients’ instructions go through the Investment One in-house order management system before reaching the exchange trading engine, which will allow investors’ orders to be previewed and completed by the stock broker.
The NSE is coordinating the online trading by stock brokers under a new initiative tagged: “Smart Trade”, which is meant to rally the stock market behind the mobile online trading, standardise and unify the platform and further provide regulatory support for the individual stockbroking firm’s efforts.
According to NSE’s Executive Director, Market Operations & Technology, Ade Bajomo, online and mobile stock broking has potential to tremendously improve the depth of capital market by widening investors’ base.
From the current retail trading investors’ base of five million, Bajomo said the stock market could leverage on increasing mobile and internet usage to grow retail investors’ base to 25 million, which will create a win-win situation for all stakeholders.
He said the online platform will enable investors to buy and sell stocks on the exchange with real-time processing functionality, adding that the platform will also enhance financial inclusion, transparency and market integrity as it gives investors greater control over their investment decisions.
He said that the platform would provide users real-time market data with availability of various technical indicators to analyse the trend and momentum of the market, thus enabling investors to make informed decisions, using the latest data.
As part of efforts to standardise and ensure security of online users and the general stock market, the NSE, in collaboration with the SEC, has issued guidelines on online stock broking.
Dealing members that operate online trading portals must adhere to the seven-point guideline on individual investors online trading and all other extant laws, rules and regulations, guiding the operations of the stock market.
According to the guidelines, dealing members with the intension of setting up online trading portals, shall implement and set up X-Net connectivity and an Order Management System (OMS), certified by the exchange.
Also, no dealing member shall operate an online trading portal without subjecting the online portal to regular penetration tests, which shall be, at least twice, a year with a reputable firm.
The dealing members shall submit to the NSE the certified Penetration Testing Reports (PTR) from a credible information security company that the online portal platform is secured for usage. The NSE will also carry out independent routine checks to validate the PTR on an annual basis and the dealers must be able to rectify any identified issues promptly.
The guideline stipulates that “all trading activities on the portal must be duly monitored and supervised by an authorised clerk employed by the dealing member.
“Any trading errors or anomalies shall be duly and promptly reported to the Exchange in line with the Exchange’s Error Trade rules.”
Besides, any dealing member willing to operate an online trading portal can carry out a comprehensive “Know Your Client” (KYC) check on all clients registered before activating an online trading portal before an online trading account is activated, or any transaction is carried out by investors on the portal.
The dealing member will also have to keep the records of the (KYC) and transactions for a minimum period of six years, or as may be amended from time to time. Stockbrokers are also expected to disclose on their trading portal and account opening forms the risks associated with portal usage in addition to compliance with the NSE’s rules and regulations, including those on communications, advertisement and publication.
Besides, applications used by clients to access the OMS system shall be protected with strong passwords, strong authentication in line with industry standards, optimised for performance and regular security testing.
Head, Transformation of the NSE, Mr. Olumide Lala, said online trading portals will close the gap between the market, investors, operators and regulators as well as increase awareness about the market.
Riding on the back
of high-tech
The NSE runs a trading engine with the scalable capability to absorb and adapt more than the current mobile phone and internet users along various product categories, including equities, bonds, derivatives, Treasury Bills, commodities and exchange traded funds (ETFs) among others.
It (NSE) runs on the most advanced trading technology in Africa. The NSE launched its current trading engine in September 2013. The current trading engine, known as X-Gen, is a version of NASDAQ X-Stream, developed by NASDAQ OMX System, a global financial services powerhouse.
The trading platform is based on a number of leading technologies, including NASDAQ OMX’s XStream matching engine, and the NSE’s flexible and robust X-GEN Market Database, developed from scratch by the NSE and its technical partners.
X-Gen has been described as the fastest trading engine in Africa. The NSE has continued to ride on the back of the wide scalability of the X-Gen to include new features aimed at enhancing price discovery and forestalling market abuse and manipulation.
In 2015, NSE introduced new features to the X-Gen including several windows that allow stockbrokers to track the underlining tempo of the market movement and also make clearer evaluation of the yield status of debt instruments.
Besides, the changes also allow for greater flow of communication among stockbroking firms during trading. The OMS, which coordinates orders from scores of stockbrokers trading simultaneously from their remote or office locations, and trading floors of the NSE, has also been made more flexible to accommodate various orders.
In its basic form, the X-GEN is able to process some 100 million orders per day with 5,000 trades per second. With the ongoing efforts to integrate West African stock markets under the West African Capital Markets Integration Committee (WACMIC) initiative, X-GEN has the latitude to use a single platform across West Africa, allowing the NSE to offer co-hosting services to other African Exchanges.
Apart from its enhanced accessibility which allows real time access to the market and scalable capability that allows trading in several assets, the X-GEN comes with market surveillance to reduce infractions and advance the back-end oversight function of the NSE, order management rules, user activities, market maker rules and much more can now be monitored and reported on in real-time.
NSE’s Chief Executive Officer (CEO), Mr. Oscar Onyema spoke of the efforts being made to curtailing cyber risks as the stock market opens up.
His words: “OMS are subject to rigorous checks and tests which culminate in a certification awarded by the Exchange. If a Firm successfully attains the certification, it means that the NSE is satisfied with the integrity of the system’s capability to undertake transactions effectively on XGEN.
“The OMS provider is then allocated a unique connection key by the Exchange. Only then is the OMS allowed to connect to the Exchange’s live trading engine.
“The Exchange has also taken steps to ensure that its eco-system maintain a high level of vigilance and best practice in information security management to mitigate against the risk of malicious code, stolen identity and fraudulent practices that could arise from this channel. There are regular frequent checks in place that are designed to identify and mitigate these risks.”
According to Onyema, X-GEN has opened an unprecedented level of innovative trading capabilities for the capital market, providing direct access for both the buying and selling sides, and mobile access through smartphones to the retail investors.
With the youth as the main driver of Nigeria’s mobile and internet usage, Onyema said NSE’s investment education programmes have been specifically designed to leverage and engage the participation of youths, noting that both the NSE and its stockbroking firms have carried out regular awareness sessions in tertiary institutions and developing materials that will further enhance youth participation and the wider investing community to mobile trading.
Onyema said: “We believe that mobile trading is set to rise significantly in our market as it offers an unparalleled level of convenience, transparency and control for all classes of investors to engage actively in the market.
“The Exchange is also constantly engaging with the younger generation to ensure they are educated and understand the dynamics of the capital market at a secondary school level.
“We think that it is important to note that 90 per cent of last year’s National Essay Competition on the capital market that was sponsored by the NSE had entries submitted online, via the NSE website, e-mail and face book.
“Only a few were physically dropped off at three of our 13 regional branches. It is a global trend that young people have more access to information, thanks to the internet, and they are savvy with the emergence of mobile phones.”
The coming boom
The Internet Society, a global organisation dedicated to promoting access to internet, predicted that mobile internet penetration will reach 71 per cent by 2019. Usage per device is forecast to more than triple by 2019 and while smartphone sales are the majority of mobile handsets sold worldwide; tablet sales will soon exceed total Personal Computer (PC) sales.
Already, 192 countries have active 3G mobile networks, which cover almost 50 per cent of the global population.
Leading e-business advisor, Babafemi Omotesho, said the internet has proven to be a platform with the largest target market audience with high-level of interaction and engagement as websites can deliver all investment education necessary for potential investors to get adequate information.
He said: “With these analysis and statistics, I would say the prospects of mobile and online stock market trading is quite high because it has proven to be more cost-effective than traditional channels in terms of personnel and financial resources needed and its ability to establish a wider target market. A deeper market penetration is expected if well executed.”
He noted that several complementary initiatives, implemented by the Central Bank of Nigeria (CBN), such as the simplified risk-based tier framework, agent banking regulatory framework and mobile-payment system and cashless policy have laid the background for the success of the online trading.
Bajomo said the mobile online trading initiative will ride on the crest of full dematerialisation and direct cash settlement to create a seamless experience for investors.
The direct cash settlement initiative will require complete documentation and reconciliation of investors’ information, holdings, contact details and bank account details.
The CEO, Infoware Limited, Mr. Uwa Agbonile, said the security of the online trading portals could be guaranteed through the use of many layers of protection to protect investors’ accounts and ensure that hackers do not tamper with the seamless operation of the system.
Managing director, GTI Securities, Moses Aledare, said his stockbroking firm has put in place adequate arrangements to ensure hitch-free operation on its online trading portal.
“The platform has a robust security features which is well articulated to ensure that investors trades and accounts are not compromised,” Bajomo said in reference to online portals reviewed by the NSE.
The capital market has struggled with the volatile fluctuations due to the dominance of foreign investors. Quick to respond to global variables and national fiscal and monetary changes, foreign investors have orchestrated the declines at the stock market over the past two years.
The Nigerian stock market lost N1.75 trillion in 2014 and additional N1.63 trillion in 2015.
In the last two months, the stock market has lost about N1.4 trillion.
Analysts, who are unanimous on the attractiveness of the Nigerian equities, also agreed that the stock market has been under the undue influence of foreign portfolio investors, who have continued to react strongly to foreign exchange management and fiscal uncertainties.
SEC’s Director-General Mounir Gwarzo has identified that growing the domestic investors’ base, remained the only way to ensure stability in the capital market growth.
Operators say that linking the vast growing mobile phone and internet usage with the unexplored potential of the capital market may attract Nigerians to their market.
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