Nigerian Stock Exchange to roll out top-speed NASDAQ OMX trading platform

The Nigerian Stock Exchange says it will have the fastest trading system in Africa when it upgrades its trading to NASDAQ OMX Group’s X-Stream platform, with a target date of second quarter of 2013. The new system will handle a wide range of instruments, accounts will be accessible from smart-phones and it will enable the NSE to host other exchanges’ trading platforms.

Previously the NSE was automated with NASDAQ’s Horizon system. The new platform is part of the wider reforms being carried through by CEO Oscar Onyema, some of which were initiated by the previous interim administrator Emmanuel Ikazoboh. Reuters reports that reforms to the market include allowing covered short-selling and extending trading hours. The news agency reports that exchange officials said that the new trading system will build confidence in the market’s transparency and adds that analysts expect the market to end 2012 with gains.

The signing ceremony was held on 24 April, chaired by CEO Onyema and Adeolu Bajomo, (Executive Director, Market Operations and Technology) from the NSE, and for NASDAQ Sandy Frucher, Vice Chairman of The NASDAQ OMX Group and Lars Ottersgard, NASDAQ senior vice president and head of technology. The NSE and NASDAQ OMX have been working on designs since September 2010. Frucher said that the surveillance system has been integrated into the trading system while Ottersgard was reported as saying the latest edition of the X-stream technology matches orders in under 100 millionths of a second.

According to a report in This Day newspaper, Onyema described the new platform as high-performance, robust and scalable, multi-asset, multi-market matching trading engine: “The new trading platform will enable the NSE to have the fastest trading engine in Africa and investors, through their stockbrokers, will have real-time access to market prices, their portfolios and be enabled to execute market orders in near real-time from anywhere and on a wide range of devices including smart phones.”

Onyema noted that the new system would improve transparency and provide efficient price discovery in the market, among other benefits, stressing that investors in the market would benefit significantly from the system upgrade as it would afford them the opportunity to diversify their investment portfolio: “With this new system, equities, a fully functional bond market and exchange-traded funds (ETFs) will be accommodated in phase one of the project, while derivatives will be introduced in the second phase. The system will also enable the NSE to host other exchanges.” Several West African countries are discussing plans to open stock exchanges.

Bajomo said the process of selecting the system had been rigorous and that the NASDAQ OMX X-stream is used by 94 exchanges around the world. “We will work aggressively to go live with the Nasdaq platform by the second quarter of 2013, but this will depend largely on the preparedness of the other market operators.”

The price of the new platform is mostly quoted in the Nigerian press (for instance Daily Independent newspaper as US$2 million. A day earlier, This Day newspaper had put the cost at over $8.8m.


Other reforms: market makers, ETFs

Media reports (for example here) quote Onyema pointing to other reform targets, including a big rise in the number of listed companies, vibrant trading of those securities and a wider range of products: “As part of the strategic transformation of the exchange we set out last year to launch five products in five years and in December 2011, we launched the first exchange-traded fund in West Africa, the ABSA NewGold ETF. We are working on launching more products in the medium term and by 2013/2014, we plan to create an options market that will trade stock options, bond options and index options. This would be followed by a futures market in 2016 that will comprise currency futures and interest rate.”

On market liquidity, he said the exchange recently unveiled 10 market makers: “With this in place, we will soon start short selling and securities lending to further increase efficiency and liquidity in the market by making available securities where they are needed. These initiatives are a vital part of increasing the vibrancy, depth and competitiveness of the market. We have also put in place rules to allow companies to repurchase outstanding shares through a share buy-back process. This would facilitate the repurchase by a company of a portion of its outstanding issued shares. The aim is to improve shareholder value (ROA, ROE, EPS, P/E); meaning a companies that feel their share prices are undervalued may engage in share buy-back to shore up the prices while also reorganizing their capital structures.”

Reportedly the NSE aims for market capitalization of $1 trillion by 2015 and to be “the gateway to the African markets”. According to an earlier report in This Day newspaper the 10 stockbroking market makers were selected from a list of 20 applicants. They include: Stanbic IBTC, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/Dunn Loren Merrifield, WSTC Financial Services, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers. Onyema said: “The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million ($3.6m). We also examined their compliance history and looked into their operational capabilities, including their technology and processes.” He added the firms were trained, debated the appropriate market structure and the Securities and Exchange Commission approved the selection. The market makers used a draw to select a basket of quoted companies in which they would provide the desired level of liquidity.

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