The Nigerian Stock Exchange (NSE), Nairobi Stock Exchange (NSE) and Pakistan Stock Exchange, have outlined measures to boost liquidity in the frontier markets.
According to the heads of the three Exchanges, in the United Kingdom, at the 7th Annual EFG Hermes London Conference, the importance of regulation in driving liquidity in the different markets cannot be over-emphasized.
Specifically, the Chief Executive Officer, Nairobi Securities Exchange, Geoffrey Odundo, noted the recent development of domestic capital pools in the form of buoyant pension and mutual fund industries across the respective markets said, “The regulators have been very supportive. For instance, we recently launched an ETF, for which window has already been created – they’ve been very proactive in helping with this. The regulator is also very committed to having pension funds enhance liquidity in the market. They are looking at how direct property ownership can be reduced from 20 per cent to 2 per cent to support the Real Estate Investment Trust (REIT) market.”
In his own contribution, Haroon Askari, Acting Manager Director of the Pakistan Stock Exchange agreed that regulation was important in creating trust. He said, “One factor which brings liquidity is the perception of a well-regulated market where investors are protected by the rules. Our regulator has done a wonderful job by bringing in new acts to strengthen the legal infrastructure. When you improve the integrity of the market you get new clients and when you get the trust of your clients you get liquidity.”
Continuing, Askari pointed out that maintaining a steady pipeline of Initial Public Offering is also crucial in boosting liquidity. “You have to have enough new IPOs in the region. If you are getting a flow of IPOs, you get new clients and everything that goes with that. If you have a stable market with a high level of integrity and a good pipeline of new IPOs, liquidity will automatically improve.”
Another important element of liquidity touched upon by the panel was the need to increase access and education for retail investors. In Nigeria and Kenya, increased technological capabilities offered by mobile devices were singled out as having drawn in an area of the market currently massively outweighed by institutions.
The Chief Executive Officer of Nigeria Stock Market, Mr.Oscar Onyema, explained that ease of access to the market is very important. He said, “We (at Nigeria stock exchange) have automated all our processes. Today in Nigeria, any investor can access the stock market using a mobile device. We’re able to provide a high level of transparency to investors with regards to life cycle of the order. By giving open access, providing the right kind of products that investors want, and making sure we have a level playing field in terms of appropriate regulatory surveillance environment, we can drive liquidity through this system.”
Odundo highlighted how the Nairobi exchange had been able to build on a pre-existing mobile infrastructure, also highlighting how technology has been used to educate budding retail investors. He said, “Kenya has a very advanced mobile money platform that we have successfully leveraged. We are encouraging the rollout of products on that platform. This year, we launched a retail mobile bond for the government of Kenya. That’s just a start in educating the public on capital market securities.
“The second level is to use the broking network to aggregate these clients. A lot of brokers have now developed online trading platforms to encourage real-time access and transparency. We have a very young population; we encourage simulation trading before even going into live trading as part of an educational, entertaining initiative. Those are the key steps in our efforts to increase retail investors – education and access for the investors.”