How cross-border securities trading will boost market liquidity
A Ghanaian fintech start-up, SecondSTAX, has launched in Kenya to facilitate cross-border trading of securities in Africa. The private platform linked Nairobi Securities Exchange (NSE) and Ghana Securities Exchange (GSE) is seeking to connect with other African markets as well.
NSE chief executive officer Geoffrey Odundo said the integration will boost liquidity at the NSE, and support access to capital and investment flows in the African market.
How will the platform operate?
SecondSTAX allows investors to diversify their portfolio outside their country or invest in their home countries. It uses a business-to-business infrastructure model that connects and allows stockbrokers, asset managers, pension funds, and institutional investors to access markets outside their own country. SecondSTAX founder and chief executive Eugene Tawiah said in the future, the company will be keen to extend its capabilities to support retail investors within and outside Africa to trade on the platform.
What is the intent of the platform?
It aims to increase the volume of trading in the African region while attracting capital. The platform is expected to pull capital across the continent and from the African diaspora while seeking to reduce reliance on inflows from outside markets.
This is seen to encourage listings of African companies in African markets rather than a global exchange, for example, Jumia (listed on New York Stock Exchange). Amid foreign investor exit, it is seen reducing the dumping of stocks in case of a market collapse.
“We see ourselves as sort of building that bridge, which now lets all of that money that is locked up in various places have a place to go and invest, and more importantly, doing it in Africa for Africans across the African continent,” said Mr Tawiah.
Amid the challenges of repatriation of capital due to lack of access to foreign currencies, SecondSTAX will help hedge in other markets, alleviating some of the pressure on foreign investors to exit.
Which markets is the platform is in operation?
SecondSTAX has linked Kenya and Ghana by first signing in brokers – Kestrel Capital and Databank respectively. It is in the advanced stages of getting into the Nigerian market, Bourse Régionale des Valeurs Mobilières SA, (BRVM) — a regional stock exchange serving the West African countries —and will later add Morocco, South Africa, and Egypt, allowing investors to diversify their portfolio.
What is required for a Kenyan broker to trade with a Ghanaian broker?
Each has to be licensed by the exchange (such as NSE) and the capital markets regulator of their respective country, in Kenya’s case, the Capital Markets Authority (CMA), to be onboarded to start trading. Institutional clients can trade directly through the portal, but all trades will be routed through the appropriate regulated entities, that is the brokers.
What will the charges be?
This will be disclosed as part of the SecondSTAX agreement – as it varies by market, but the maximum rate is set by the CMA. SecondSTAX will not add any fees, therefore trades on the platform will not exceed already set maximums in each market.
How will trading on the platform be executed in different currencies?
Since investment firms onboarded hold funds in different currencies, the platform has integrated liquidity partners that facilitate the instant exchange of the currency and trading. A broker can go into the portal to fund their account and carry out a trade execution, making the process seamless. This will reduce single currency risk and reduce the volatility in their returns, whether in Africa or elsewhere.
What investment assets are available for trading?
The SecondSTAX currently provides access to debt and equity securities across multiple African markets. Eventually, all products available in one market will become available in the other. For instance, Kenya has derivatives that will be an opportunity for somebody sitting in Ghana to leverage for their portfolio. The new asset classes are expected to add depth to the platform.
What is the reason behind the focus on African markets?
African economies tend to have high imports despite vibrant raw materials and agricultural produce inflows, making them similar. Foreign investors are also allowed to invest.
“At the end of the day, foreign investors can still come in. We appreciate the fact that capital is looking for places to express risk. But if we build that capacity here, we can generate those types of returns for local investors, and get a better outcome for everybody who is involved,” Mr. Tawiah added.
Source: Business Daily Africa