Plans are underway to enable Africans in four countries to trade in shares without the current barriers of opening accounts in foreign countries. This will allow investors to diversify their assets.
The Nairobi Stock Exchange has revealed that plans are underway to allow traders to buy shares in top African markets in a simpler and efficient way.
According to Nairobi Stock Exchange (NSE), once the plan is rolled out, local traders in Kenya will be able to buy shares directly from Morocco, Nigeria and South Africa.
This was revealed during a meeting held last week to announce NSE’s 2015 results as well as their 2016 economic outlook.
Speaking at the event, NSE chief executive Geoffrey Odundo said the four countries including Kenya are working on a pilot cross-border trading strategy that could be realized within the year.
This is part of NSE’s new cross-border trading plan. In the new scheme, investors will not be required to open an account with stock brokers in the various foreign countries to trade in securities (shares, derivatives and bonds) as is at present.
Moreover, the new stratagem will allow investors place their orders directly through the local stockbroker.
Mr Odundo said: “we will enable local investors to transact in the other markets, which has never been possible in Africa,” adding that it is being run under by the Africa Stock Exchange Association (ASEA).
According to Mr Odundo, the proposed cross-border trading which is in the initial stages will be of benefit to local and foreign investors. Through their brokers, the investors will be able to buy and hold stocks from either of the countries while residing in another without the need to open an account in the foreign country.
Commenting on linkages in East Africa Community, Odundo said that there are plans to harmonize the capital markets in the region. Although the economic bloc has already harmonized regulations and directives, the infrastructure is yet to be put in place to allow the plan to kick off swiftly.
NSE is also introducing the derivatives segment to boost its revenues which declined in the year under review. Odundo noted that the decline in profits was contributed by high-interest rates and the introduction of capital gains tax.
With the introduction of derivatives, the firm hopes to boost revenues and according to Capital Markets Authority (CMA) CEO Paul Muthaura the guidelines for the trading in derivatives have already been published. The roll-out of the new project was held back due to the absence of guidelines. A Derivative is a financial instrument (like stock) which derives its value or price from the underlying assets. They include futures, options, forwards and swaps.
By broadening the market access, Odundo said that this will allow investors to increase the diversification of their portfolios as well as provide a cushion from country-specific market forces. This, he said will especially benefit the small investors who are limited in finances to trade beyond the local markets.
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