The Nairobi Securities Exchange (NSE) is eying reaching a single day settlement for trades in equities, a move aimed at boosting liquidity on the stock market.
According to the Exchange’s chief executive officer, Geoffrey Odundo, a reduction in the number of days it takes to settle transactions is key to enhancing the level of liquidity on the market, hence attracting more investors. In an interview last month, Odundo said higher levels of liquidity will be achieved by reducing the trading and settlement cycle, increasing the number of products on offer and improving efficiency of trading systems. At the moment, the number of days it takes to settle equity transactions on the stock market is three working days (T+3).
“Essentially, we would try to reduce that to T+2. Ultimately, we are thinking of having T+0,” Odundo says, adding: “Within five years, we’ll be at T+0 (trading and settlement within a day), but in the interim, we are going to move in steps”.
A reduction in the number of days it takes to settle transactions means that investors can re-invest their earnings into similar or other counters, boosting levels of liquidity. In 2011, the number of days within which investors get paid for trades were cut down from T+4 (four working days) to T+3. A shorter settlement period increases the level of investor participation in the market, more so for those with constricted financial obligations.
The NSE, which has lined up other ambitious targets to increase products in the market and position Nairobi as a capital markets hub in East Africa, plans to launch the derivatives exchange in the second quarter of 2015. It has already admitted seven derivatives brokers and three clearing banks ahead of the launch. The seven derivatives brokers include Dyer and Blair, Genghis, AIB Capital, SBG Securities, Faida Investment Bank, Kestrel Capital and Standard Investment Bank, while the three clearing banks are Co-operative, CFC Stanbic and Barclays.
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