Stock Exchanges News
- How do stock exchanges stay relevant to their societies? SMEs and exchanges 24 March 2015
“How do we become relevant to society again?” This is the challenge posed to world’s securities exchanges this morning by Ashish Chauhan, CEO of BSE India securities exchange. He told the World Exchanges Congress in London this morning (Tue) that stock exchanges that concentrate only on trading for the sake of trading are in a zero-sum game.
They should look to add value in areas where there will be gains. He sees the gains will be huge for proactive securities exchanges: “In next 20 years we will create more wealth than in last 10,000 years – will the exchange industry participate in that”.
Chauhan points out that India has 1 in 6 of world’s population but only 2% of its land mass, there are more people than Europe and USA combined and 50% of population are under 25 years old. The challenge is to create jobs and to provide the skills for employment. Exchanges should ask if that will be done by private equity and other channels, or will the exchanges be able to play a major part?
BSE India’s response is to set up BSE SME Platform. Its website “offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.”
Chauhan says that going forward technology will change the world and India with its young population skilled in technology will be driving that change. How does each exchange solve the problems of the society it is operating in?
Europe’s integrated capital solutions to big issues
Earlier Cees Vermaas, in his first engagement as CEO of CME Europe, spoke of his vision of Europe in 2030. A centralized market and Europe-wide clearing and settlement will allow relentless pursuit of efficiency and falling costs. London will remain the financial centre, but smart networks will allow other specialist centres to grow all over Europe. This will include more exchange centres to provide funding for SMEs and for infrastructure. Exchange-linked investment into all forms of energy and will support transitions into new and efficient forms of green energy. European bond markets are only 30% of USA volumes at present but in coming years that will change fast with less fragmented bankruptcy regulatory frameworks
- What are Africa’s pension funds investing into? 13 March 2015
Do you agree or disagree with this view? Comments are welcome below
Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.
For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.
Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.
What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.
The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.
Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.
Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.
What to invest in?
The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?
Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.
Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.
Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.
Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.
Private equity and infrastructure
The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.
International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.
Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.
Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?
For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.
- Meet the new CEO of Uganda Securities Exchange 12 March 2015
Paul Bwiso, the former general general manager of stockbroker Dyer and Blair Investment Bank of Uganda, has big plans as new CEO of the Uganda Securities Exchange. His challenges include a challenger exchange, plans to win more listings, more automation, hopes to demutualize the exchange.
Low liquidity in the Ugandan capital market has not deterred a rival exchange, ALTX Uganda, which is currently testing and plans start trading from 1 May. ALTX was founded by Joseph Kitamirike, a previous CEO of the USE. Last month ALTX announced backing from GMEX Group which is offering an “exchange in a box” hosted trading solution and has backing from Deutsche Börse AG and Forum Trading Solutions Limited through its investment vehicle.
According to a recent interview in Uganda’s Daily Monitor newspaper, Bwiso, who has been on the exchange’s governing council, says: “My plan is to correct the way we have been doing things… We know the problem with the way things have been done. We shall review some of regulations in order to open up the market.”
He is confident on ALTX: “They were only putting us on the edge but I believe we are in a stronger position.”
He admits the market has struggled to attract listings while Ugandan companies are also seeking to raise money: “We’ll have to sell the potential of the main market segment, growth enterprise market segment and corporate bonds. In about 18 months, if we can fix the system here, then I see about 7 listings,” he said.
Market capitalization on the USE was UGX 28.6 trillion ($9.8 billion) including dual-listed stocks, according to today’s (12 March) market report. A recent news report put the value of 8 local stocks at $1.27bn, dominated by Stanbic Bank Uganda with $600m of market capitalization (measured by number of shares multiplied by closing share price). Power distributor Umeme attracted a lot of interest when it came to the market in November 2012 and since then the share price is up from UGX340 to UGX500 today.
So far only 40,000 Ugandans have registered as shareholders, according to the 2014/15 national budget speech, out of a population of 37.6 million. Liquidity both to invest and to exit have been some of the major worries.
It took the USE governing council more than a year to find the right successor to Kitamirike, according to the report.
- Nigeria’s SEC asks for comments on exchange demutualization 5 March 2015
Nigeria’s Securities and Exchange Commission has published rules on demutualization of securities exchanges on 20 February and this week is the end of the 2-week deadline for comments from stakeholders in the capital markets.
The Nigerian Stock Exchange (NSE) has decided to demutualize, by agreement of the Council and members. However, it had not been able to go ahead because there were no SEC rules on demutualization. According to this press report in This Day newspaper, the announcement comes 3 years after an SEC committee had submitted its report.
Demutualization is a process in which a member-owned exchange, sometimes a company limited by guarantee, is turned into a normal company with shareholders and investors. Usually it is a for-profit company and it can even list on its own exchange, with good examples set by the Johannesburg and Nairobi securities exchanges.
The proposed draft rules and regulations suggest “no single entity/person or related entities/persons should be permitted to own, directly or indirectly, more than 5% of the equity and/or voting rights in the demutualized securities exchange. The aggregate equity interests of members of any specific stakeholder group (for example, brokers and broker/dealers) in the demutualized securities exchange should not exceed 40%.”
Trading participants who are shareholders need to reduce their cumulative holding in the exchange to not more than 10% within 5 years of demutualization.
“Strategic investors” can get equity if they provide evidence of technical expertise through managing other exchanges. “The aggregate number of shares to be offered to the Strategic Investors shall not be more than 30% of issued and fully paid up capital of the securities exchange. However, if the exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the Commission.”
The Board of Directors of the demutualized exchange should be up to 13 members with at least a third are independent, non-executive directors and all board and executive management appointments must be approved by the SEC. The exchange must comply in all other respects with the SEC Code of Corporate Governance for public companies.
- Capital markets course offered in Nairobi 5 March 2015
The Nairobi Securities Exchange is calling for applicants for a “certified capital markets specialist” course, to be held on 16-20 March at the Ole Sereni Hotel, Nairobi. Registration has been extended to 10 March. Places cost $1,995 + VAT.
The course for 30 participants is organized by Intellisys Business Solutions Ltd in partnership with the International Association of Finance Management, headquartered in Luxembourg. According to its website it is a global organization that provides financial training courses to professionals, institutions and corporations around various locations and programmes in banking, insurance, capital markets, wealth management, risk management and project finance.
The course is facilitated by Michael Preiss, a member of the Interfima management committee. According to his bio he is a senior investment advisor based in London, advising ultra high net worth and key clients in Russia, Middle East and Africa. He has also worked at HSBC Private Bank in Dubai and the Middle East and Standard Chartered Bank in Hong Kong and Singapore.
There is not an obvious connection with the regional-focused training courses organized by the Securities Industry Training Institute (SITI) and funded by International Finance Corporation as part of its Efficient Securities Markets Institutional Development (ESMID) programme (www.ifc.org) with the Swedish International Development Authority and the World Bank. According to this story, this was launched in 2009 and is based in Kampala, aiming to offer certified courses that would be recognized across the region to thousands over a 10 year period.
- Dar es Salaam Africa’s top stock exchange to 31 Jan 7 February 2015
Tanzania’s Dar es Salaam Stock Exchange topped the performance list for the 12 months to 31 January for USD investors, according to the data collected by Ryan Hoover’s excellent Investing in Africa website. It managed a 27% climb, including 3.8% in January. That beat the S&P 500 index which managed a strong 11.9%, despite increasing worries of pending bear markets and falling back to 30 Jan, although it has since gained.
Other African bourses which beat the S&P included Uganda Securities Exchange (up 18.3%), South Africa’s JSE (up 17.1%), Nairobi Securities Exchange (16.1%) and Namibian Stock Exchange (up 15%).
Hardly surprisingly, two of the worst performers were hit by the crashing oil price, including heavy falls in the currency compared to the soaraway USD. Nigeria was down 36.9% including 16.6% in January and Ghana down 32.1% including 8.3% in January. Weakness in the euro no doubt contributed to the poor performance of the BRVM, as the CFA currency is linked to the euro.
This picture, created by website AfricanBusinessCentral gives “volume”, which is normally defined as the number of shares traded, although I could not find the source data for this infographic so we welcome any clarifications. Better indications of exchange liquidity are often the value of shares traded and the number of transactions.
- JSE number of equity trades up 19% in 2014, scores daily records 19 January 2015
South Africa’s Johannesburg Stock Exchange (JSE) saw the number of equity trades soar 19% for the year 2014, compared to 2013. It also broke records for the highest daily value traded on 18 Dec when R53.7 billion ($4.6bn) worth of equities traded, and it hit the highest number of daily trades was 395,969 trades on 16 Oct.
There were a total of 24 new listings for the year, which added R86bn in market capitalization, including a record 8 new listings in December. In the same month, the value of trades reached a monthly record of R345.5bn, a 45% increase compared to trading in Dec 2013. In 2014, the net inflow from foreigner investors was R13.4bn.
The JSE Equity Derivatives Market, which provides traders and private investors with a platform for trading futures, exchange-traded CFDs (contracts for difference), options and other derivative instruments, saw value traded up 18% to R6 trillion. This was largely driven by the JSE flagship equity derivative futures products, index futures and single-stock futures (SSFs), which both increased by 19%.
Growth for 2015
Donna Oosthuyse, Director Capital Markets at the JSE, comments in a press release (not yet available at www.jse.co.za): “Going into 2015, a key focus for us will be to sustain these positive growth levels for the Equity and Equity Derivatives Markets. For the Equity Market our priority will be to ensure that the JSE remains an attractive venue for participation in the capital markets. For the Equity Derivatives Markets, our key focus will be to remain responsive to the needs of the market by offering investors with innovative products that provide global exposure and an ability to weather the prevailing economic environment.”
Looking back on a busy year and particularly December, she said: “The JSE Equity Market is the bedrock of the exchange and we are pleased with the performance of this segment of the market for the year, driven mainly by renewed positive US economic sentiment and a rapid decline in oil prices.
“The performance of the Equity Derivatives Market is also pleasing as it signals to the improving appetite of local and foreign investors to participate in this segment of our capital markets.”
Oosthuyse added that foreign participation in index futures had increased compared to 2013, from 31% to 37%: “This is a promising development as any increase in foreign participation can only breed more liquidity and galvanize our status as a first world exchange.”
The Johannesburg Stock Exchange has operated as a market place for trading financial products for 125 years and is one of the top 20 exchanges in the world in terms of market capitalization. It offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management. It is a member of the World Federation of Exchanges (WFE).
- “Jeff” Otieno Odundo new head for Nairobi Securities Exchange 9 January 2015
Geoffrey “Jeff” Otieno Odundo will be the Chief Executive of the Nairobi Securities Exchange (NSE), effective from 1 March 2015. The announcement was made yesterday (8 Jan) by the NSE Board of Directors.
Mr. Odundo is an accomplished investment banker with 22 years of experience in the financial sector experience including 16 years in the capital markets in various senior roles in asset management, corporate finance and stock broking, according to a press statement.
Mr. Odundo has been Managing Director and CEO of Kingdom Securities Limited from June 2009. According to the statement: “During his tenure at Kingdom Securities Limited he has overseen the growth of the firm to become one of the leading trading participants of the NSE and has been instrumental in key listings on the NSE as well as other corporate finance transactions.”
According to a report in Business Daily NSE chairman Eddy Njoroge said the investment banker was appointed after a thorough vetting process: “The board together with KPMG considered numerous applications from various applicants of the highest standards”. He said Mr. Odundo’s leadership skills, experience and wealth of knowledge would be instrumental in driving the NSE’s strategic plan.
Capital FM quoted Mr Odundo as saying: “I am very confident that the future of the NSE as a key driver of Kenya’s economy is very bright as we deepen the current products and diversify into new product offering.”
He takes over from Peter Mwangi who left in November after serving two 3-year terms as CEO and became CEO of Old Mutual Kenya. Mr Njoroge also thanked Andrew Wachira, the Head of Compliance and Legal, who has been the Acting Chief Executive for the transition.
Odundo has served as a Non-Executive Director of the NSE representing Trading Participants from March 2012. During this time, he has been the Chairman of the NSE Technology Committee and has also been a member of the NSE Finance and Manpower Committee and the NSE Listings and Admissions Committee.
Before moving to Kingdom Securities he was instrumental in setting up Co-op trust Investment Services and Co-op Consultancy Services Limited. Other roles include as a Director and Secretary of the Kenya Association of Stockbrokers and Investment Banks (KASIB), “a role in which he was instrumental in improving the service delivery and standards on the operations of Capital Markets intermediaries.” According to the statement.
Qualifications include a Bachelors of Arts Degree in Mathematics and Economics from Egerton University in Kenya (main campus Njoro near Nakuru) and a Masters in Strategic Management from the United States International University (Nairobi). He is married with 3 children and enjoys soccer, golf and Formula One. He is also a dedicated member of the St. Paul’s University Chapel Lectors Group and founder of Ame Foundation to support the less fortunate.
- Rwanda Stock Exchange closer to Nasdaq X-stream automated trading 5 January 2015
Rwanda Stock Exchange (RSE) says it is getting closer to introducing an Automated Trading System using trading technology from Nasdaq OMX. It will also link its trading infrastructure to the Central Securities Depository (CSD) and Real Time Gross Settlement System (RTGS) at the National Bank of Rwanda.
In March 2014, there was a report in The East African that the RSE was aiming to use the Nasdaq X-stream system installed at the East African Exchange (EAX) regional commodity market. The latest news from the East African Securities Exchanges Association EASEA press communiqué (available here) from the 24th meeting in Rwanda on 26-27 November was: “The RSE is in the final stages of automation of its trading system”.
Nasdaq describes X-stream as “a flexible, out-of-the-box solution trading multiple asset classes simultaneously on a single platform” on its website. It says X-stream is “the world’s most widely deployed matching technology” among market operators and is deployed in over 30 exchanges globally.
According to the March story in The East African: “John Rwangombwa, the governor of the National Bank of Rwanda, told Rwanda Today that though electronic trading had been delayed due to the heavy financial outlay required, RSE and EAX are now in advanced stages of sharing the NASDAQ system. .. We have been working on our side as a central bank to link the central securities depository. In the course of this year —in three or four months — automatic trading will be up and running.”
The report added: “While trade volumes on the RSE have been steadily increasing, its current manual trading platform makes it uncompetitive in particular among offshore investors.”
The RSE also reported that the bond market is becoming more “vibrant”, with quarterly issues by the Government of Rwanda. This was after work by a team made up of Capital Market Authority (CMA), Rwanda Stock Exchange (RSE), Central Bank of Rwanda and the Ministry of Finance and Economic Planning.
East African Exchange
The EAX was launched on 3 July 2014 by His Excellency President Uhuru Kenyatta of Kenya. It had been established by Tony O. Elumelu, CON, of Heirs Holdings, Nicolas Berggruen of Berggruen Holdings, Dr. Jendayi Frazer of 50 Ventures and Rwandan investment company Ngali Holdings. Acccording to a press release: “the EAX is a commodity exchange that aims to increase regional market efficiency and give the growing population, particularly smallholder farmers, better access to commercial markets.
“EAX will use NASDAQ’s OMX X-Stream trading platform for electronic trading and warehouse receipts so farmers can deposit their produce into EAX certified warehouses and access its services.
“At the formal launch, Mr. Elumelu said: ‘The EAX showcases our desire to identify far reaching investment opportunities, while ensuring that most of the value-adding aspects of Africa’s resource wealth stay on our continent. Africa must move toward greater self-sufficiency with private investment and strategic partnerships, just as we have done at EAX through our partnership with NASDAQ.’
“Nicolas Berggruen said: ‘EAX is complementing the EAC’s goal of regional economic integration, and putting in place a world-class exchange to create a globally competitive market for Africa’s commodities.’ EAX’s goal is to facilitate trade across all five East African Community member states. EAX is wholly owned by Africa Exchange Holdings, Ltd. (AFEX). EAX in Rwanda is additionally owned by local investment company Ngali Holdings.”
According to an earlier story on AFEX and its plans in Nigeria, Jendayi Frazer was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009). Nicholas Berggruen has a charitable trust which funds the investment arm to take “a long-term, patient capital value-oriented approach”.
A story written in New York Times in March 2014 described “A commodity exchange, with its dozen terminals and state-of-the-art software provided by Nasdaq, held its first six auctions over the past year — a fledgling venture, but the kind that helps explain how a nation with no oil, natural gas or other major natural resources has managed to grow at such a rapid clip in recent years.
For 2104 photos of the Rwanda Stock Exchange and the East African Exchange see the New York Times website here.
- Nairobi securities exchange prepares for derivatives market launch 30 December 2014
The Nairobi Securities Exchange is pushing ahead with plans to launch a derivatives market, including preparing product and contract specifications, and public education and stakeholder engagement meetings.
This follows the news on 19 Dec that the Capital Markets Authority granted NSE a provisional licence to set up and operate a derivatives exchange and approved the NSE’s Derivatives Exchange Rules and related documentation.
According to a press release put out by the NSE, acting Chief Executive Andrew Wachira said: “The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts. The exchange has invested in the development of the derivatives market to ensure that it will meet global standards including mechanisms for trading, clearing and settlement of the instruments traded.”
NSE’s derivatives market is modelled on the derivatives market at the Johannesburg Stock Exchange (JSE), which offers trading in futures and options on equities, bonds, indices, interest rates, currencies and commodities.
The latest move is in line with the strategic plan of the NSE. According to a report on Bloomberg earlier this year in February this envisages market capitalization soaring fourfold to KES 7.2 trillion ($79 billion) by 2023 from KES1.85 trillion.
NSE Chairman Eddy Njoroge noted in the press release: “Derivatives are among the most affordable and convenient means companies can cushion themselves against interest-rate fluctuations, exchange-rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets. The establishment of a derivatives market is a step towards growing the NSE brand and shareholder value and is also in line with Kenya’s Vision 2030 of deepening our Capital Markets and making Nairobi the financial services hub of East Africa.”
According to Bloomberg, a system for trading derivatives has already been installed. The law to allow creation of the futures market was passed in Dec 2013 and rules were submitted for approval by mid-February.
“Derivatives” get their name because their value is derived from another asset class such as a share, a physical commodity or an index. The JSE was ranked the 6th largest exchange by the number of single stock futures traded and 9th by the number of currency derivatives traded in 2012 in the World Federation of Exchanges Annual Derivatives Market Survey, according to the press release.