Transcript Document

Nairobi Stock Exchange Presentation
The Challenges Facing African Securities
Exchanges as They Upgrade their Information
Technology in Order to Remain Competitive
By:
Mr. Chris Mwebesa
Chief Executive
Nairobi Stock Exchange (NSE)
9th ASEA CONFERENCE
NAIROBI STOCK EXCHANGE
Paradigm Shift in the Securities
Exchange Business
NAIROBI STOCK EXCHANGE
Globalisation and the Information
Economy and its effect on Africa
Globalisation can be narrowly described as the
integration of financial markets characterised by
free flow
of capital and other resources.
However a more expansive and eloquent definition
must
include the social, political,economic and
cultural
spheres of Globalisation.
Each of these spheres of Globalisation is
supported by
the application of electronic commerce, the socalled
information economy.

Securities exchanges operating as a "club of
brokers" offer these services as monopoly
operators serving largely under a mutual
governance structure.

The members of the club enjoy rights of
ownership, decision-making (one member, one
vote), and trading. Value enhancement of the
exchange is achieved by restricting access.

Securities exchanges are now increasingly
changing their business model and
restructuring themselves across the world
due to the simultaneous convergence of a
number of powerful developments.
Key change drivers include:
1.
Advances in ICT
2.
Convergence
3.
Connectedness
4.
Changing consumer trends
1. Advances in ICT:

Advances in ICT are causing the
following: Reducing
information asymmetry thus
making markets more efficient;
 Providing easier access to markets and
products, both domestically and
internationally;
 Enabling more effective analysis and
monitoring of risk;
 Allowing more accurate pricing and
redistribution of risk;
2. Convergence

Blurring of traditional boundaries between
banking, insurance and funds management

Balance-sheet intermediaries need the skills
of the dealer

Market traders need big balance sheets to
underwrite ever larger securities issues


bank relationships and reputation count
Underlying techniques for defining and
managing risk also converge
3. Connectedness
On-going globalisation of financial services
facilitated
by roll-out of internet connectivity
 Especially
evident in growth of ECN’s
and on-line share trading
 ECN’s
account for 30% of all trades in
NASDAQ securities.
3. Connectedness
The proposed merger of the NYSE and
Archipelago
gives NYSE a way into NASDAQ listed stocks, in
which
Archipelago has a 25% market share, and the
growth
business of derivatives trading
“supply side” and “demand side” scale
economies are too powerful for
information-intensive industries to
resist digitisation
Global Alliances

NYSE
TSE
EURONEXT
(Paris, Amsterdam,
Brussels)
Tokyo
Nasdaq/Amex
HKSE
Mexico
Brazil
SGX
ASX
MOUs Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand,
Tokyo
Source: ASX
4. Changing Consumer Trends

As populations age, people need access to
higher rates of return on their savings, which
only come with higher risk;

More diverse life cycle experiences including:
 greater job mobility,
 longer periods spent in training and
education,
 shifts in work – leisure preferences and,
 changes in family structures and
experiences.
4. Changing Consumer Trends

Better access to information and weakening
of traditional supply relationships are
raising consumer awareness of product and
supplier value, thereby increasing
competitiveness in markets;

Greater familiarity with the use of
alternative technologies means that more
households are pursuing lower cost and
more convenient means of accessing
financial services.

Greater presence of institutions as
investors;
The Challenges Facing African Stock
Exchanges
NAIROBI STOCK EXCHANGE
Challenges
The Challenges Facing African Securities
Exchanges
as they upgrade or even in some cases embrace
Information Technology in order to remain
competitive cannot be isolated from the
challenges that
Africa as a continent faces as she attempts to
take
advantage of the information revolution and
hence bridge
the infamous “technological divide.”
Challenges
The inequality in the information economy goes
beyond a
division between the developed and developing
world to
intra continent and further intra country
divisions.
Specifically divisions arise from the possession
of the
knowledge, skills and abilities to contribute to
the
information economy.
Challenges
1.
The Development of Information and
Communications Infrastructure
2.
Human Resource Development and Employment
Creation
3.
Africa’s position in the Global Economy
4.
National and Regional Legal and Regulatory
Frameworks
5.
Cost Implications
6.
Change Management (Resistance to Change)
1. The Development of National
Information and Communications
Infrastructure:
The African information and communications
environment is characterized by:–
–
–
–
–
–
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Low telephone penetration rates;
Slow network growth;
Antiquated systems;
Sub-optimal reinvestment of profits;
High pricing of private facilities;
Poor inter-city telephone links;
Widely varying national infrastructures
1. The Development of National
Information and Communications
Infrastructure:
Access to information and communications
infrastructure is abysmal to say the least.
Achieving some form of “universal access” is
critical to Africa in order to make the
information
economy effective.
A wide variety of information infrastructure
possibilities exist such as Multi-Purpose Info
Centers(MPCICs),Global Mobile Personal
Communications via Satellite(GMPCS) and
local
wireless solutions that could be considered
2. Human Resources Development
and Employment Creation:
Low levels of education and literacy are
crippling Africa’s ability to exploit the
information economy. The limited use of
universal languages (English) is
often cited as an additional constraining
factor.
Large components of the population
whose
educational level and technical skills do
not
2. Human Resources Development
and Employment Creation:
Educational requirements for the information
economy are increasing in complexity yet
most national development programs on the
continent continue to base their employment
creation strategies on the perceived
comparative advantage that comes from
access to large pools of cheap unskilled
labour.
3. Africa in Global Economy:

Real and perceived incidents of endemic
macro-economic and political instability on
the continent has worsened the
competitive environment for the African
private sector and Stock exchanges are no
exception.

Attracting foreign investment which is one
of the key benefits from automation is
harder because of these perceptions.

The emergence of the global information
economy heavily dependant on knowledge
based products and services has further
exposed Africa’s already tenuous primary
production position in the global economy.
4. National and Regional Legal
and Regulatory Frameworks:
Appropriate and effective regulation of new
information
economy systems enhances a country’s and by extension
a
stock exchange’s ability to attract investment
both domestic and foreign.
Effective compliance is key.
Thorny issues such as intellectual property protection,
privacy, security, data protection, electronic payments
and
currency, and wide ranging consumer protection issues
remain to be addressed in national legislation and
regional
Strategies.
Further with no real national boundaries, the legal
5. Cost Implications(Capital
Outlays):
How to justify huge amounts of capital on
technology spend given the small market
size,
liquidity and depth, of national capital
markets,
which individually are very small and illiquid
to
effectively attract large pools of
portfolio flows;
Spend now or Later?

The costs of technology will continue to
fall;

Technology has also made it possible to
analyze and monitor risk more effectively and
to disaggregate it on a broad scale;

To price it more accurately and to
redistribute it more efficiently;

Innovations will increase the ease and
security of electronic transactions;
Spend now or Later?
Technology has lowered barriers to entry;
Securities Exchanges that do not invest in
information technology infrastructure,
do so at the own peril
6. Change Management:
Human nature is such that change is almost
always resisted and hence must be managed
effectively;
Teething problems usually blamed on the
technology when in fact in most cases it is
other
factors or events that impact
implementation.
The Way forward for African
Stock Exchanges
1.
Proper planning and implementation.



2.
Address regulatory issues
Address training needs
Effective Solutions
Regional Co-operation and co-ordination.

Continental and sub-regional
THANK YOU
Open Floor
NAIROBI STOCK EXCHANGE