Nairobi Securities Exchange: Linking Capital to Opportunity

Founded in 1954, the Nairobi Securities Exchange (NSE) is a leading African Exchange with a six decade legacy in listing equity and debt securities. NSE offers a world class trading facility for local and international investors looking to gain exposure to Kenya and Africa’s economic growth. The NSE is focused on innovation, diversification and operational excellence in the Exchange. Over the years, the NSE has travelled a transformational journey from a service leaning business to a commercial oriented business.

Providing a wide number of services to investors on various platforms, the Nairobi Securities Exchange (NSE) is a listed company demutualized and self-listed in 2014 providing a market for financial assets.

Under the stewardship of Mr. Geoffrey Odundo who has been at the helm of the Exchange for seven years, the NSE continues to play a vital role in the growth of Kenya’s economy by encouraging savings and investment, as well as helping local and international companies access cost-effective capital.

Currently, NSE has sixty five listed securities; sixty one listed companies, two preference shares, one Real Estate Investment Trust (REIT) and one Exchange Traded Fund (ETF).

“The NSE basically trades on shares; which means that a company can come to the market and say that they want to offer their shares or part ownership in their company to the public. That offering, is called an initial public offer (IPO), in return, the company gets money to pump into the business. The shares then have to be listed on the Exchange so that the people who missed out on the initial public offer (IPO) can buy from the secondary market.

Moreover, those that bought in the first offer and want to sell can do so. In the simplest terms, we at NSE provide a platform for buying and selling of shares or assets among various investors,” explained the Nairobi Securities Exchange Chief Executive Officer Geoffrey Odundo in an interview with the Corporate Watch Magazine.

The metamorphosis…
He added that his first assignment as CEO was to spearhead the transition of NSE from a private company that was owned by brokers into a fully public company with its shares trading and to expand the Exchange’s products.

Today, the Nairobi Securities Exchange boasts of seven categories of products i.e shares, bonds, REITs, Exchange Traded Funds, Unquoted Securities platform as well as a derivatives market which makes the Nairobi Securities Exchange (NSE) the second securities exchange in Africa with the highest number of products after the Johannesburg Stock Exchange.

With a vision to be the leading Exchange and investment partner of choice through providing efficient investments and capital raising services in Africa and globally, the NSE under Mr. Odundo kicked off a campaign to improve the NSE trading platform by separating the trading system from the depository system.

“For almost sixteen years, the exchange and the depository systems were integrated, this meant that when we traded, our actions affected the depository side and vice versa causing a dependency risk.

Through decoupling, we have managed to create independent systems for the exchange and for the depository which has enabled us to stabilize the system and rid it of outages and downtimes. This independence, achieved in the year 2019 has boosted our ability to remain online for trading almost 100 percent of the time,” assured the CEO.

With the launch of its derivatives market, the NSE has been able to make the exchange international thus it is possible to buy contracts on the exchange. Mr. Odundo, who holds a Master’s degree in Strategic Management and an undergraduate degree in Mathematics and Economics also noted that the exchange’s digital strategy which includes the introduction of mobile applications to allow Kenyans to buy and sell shares easily, the digital academy which is basically providing virtual education to potential investors.

“Apart from these, we have equally improved the infrastructure between us and our stock brokers. We used to have a lot of connectivity challenges but that has been solved and trading is now seamless among trading participants. We have also established a business continuity area which is meant to cushion us against any eventualities. Further, at the peak of the Covid-19 pandemic we virtualized our business to facilitate trading from home,” he noted.

The NSE has also enhanced trading with the launch of Bonga points for shares powered by telecommunication giant Safaricom. Today, you can use your Bonga points to buy shares.

Moreover, you can now buy and sell a share within a single day or trading session or multiple times over the course of the day with the establishment on day trading.

The NSE has also launched the unquoted securities platform for private companies. The unquoted securities platform is a private and separate market for entities with no formal structures to go into a listed market.

Sustainability, Integrity and Excellence…
The Nairobi Securities Exchange (NSE) according to the CEO has a clear strategy on sustainability which is one of its core values. The Exchange has identified sustainable development goals such as poverty, diversity, gender balance and actually promotes gender parity and champions for more women on boards and senior management positions. The exchange also runs various programs under its flagship platform dubbed the Charity Trading Day introduced within the last seven years.

The Nairobi Securities Exchange (NSE) published a critical document called an ESG Disclosures Guidance Manual (The ESG Manual) for Kenya’s listed companies and the wider financial community, to help them understand how to address ESG issues as a key component of investor relations, as well as the main principles to consider when preparing an ESG report.

The ESG Manual provides detailed guidance on the implementation of ESG metrics in organizational strategy, as well as collection, analysis and reporting of ESG performance. It will enhance consistency, comparability, and credibility of the ESG disclosures by listed companies thus boosting integrity. The ESG Manual will also raise the standards of reporting on ESG practices by companies listed on the NSE thereby enriching the competitiveness of capital markets.

The ESG Manual is aligned with the Capital Markets Authority’s Code of Corporate Governance Practices for Issuers of Securities to the Public. Listed companies have until 29 November 2022 to comply with ESG disclosure requirements.

Mr. Odundo adds that the NSE which operates under the jurisdiction of the Capital Markets Authority of Kenya is an indicator of the state of the economy. In that, an investor who wants to have a direct foreign investment here first looks at the performance of the exchange to get an idea on how the sectors will perform because the exchange mirrors all the sectors of the economy. “We have listed companies from all the sectors of the economy, so if the economy is performing, you can compare and contrast performance of companies in the different sectors of the economy. If the companies in the sectors are performing well then that is the best indicator for an investor,” said the Exchange boss.

He added that NSE helps provide a medium for raising capital. Long term capital is raised through the market via IPOs, secondary offers, corporate bonds and eventually offer an avenue for Kenyans to create wealth in the sense that an investor does not have to put their money in a bank, rather they can buy shares from the NSE and create wealth through shares trading.

The NSE boss however notes that despite the phenomenal growth in the stocks exchange industry which currently is valued at about 2.7 trillion shillings (almost 30% of the economy), the exchange is focusing on building the markets by encouraging investors to embrace the products. The exchange is also embarking on building partnerships and encouraging companies to come into the market.

“In the last six years it has been difficult to attract good companies. This has been a great challenge. We are however hopeful that the government is now focusing on privatization and they are just waiting for the appointment of privatization commissioners.

Almost 80% of the exchange is former government entities. We will continue engaging with the government to see how they can list more companies into the market. We are also working on the private sector to make our market more attractive,” said the CEO who is also an Advanced Management Program (AMP) graduate from Strathmore and IESE – Spain Business Schools.

Incentives…
The bourse’s boss noted that the exchange is working round the clock to get the youth into this market by engaging them in financial education in a bid to increase the number of transactions through active trading by the public. Being a key stakeholder in the NSE, the exchange is working hand in hand with the government to improve the incentive structures for investors.

The key one being tax incentives both for issuers and people trading. The issuers for instance, do not pay tax at 30% for people who list their shares. If you list 40% of your shares you do not pay tax at 30%, you pay tax at 20% for five years just as an incentive thereby earning you a tax advantage. Kenya is one of the few markets with no restrictions on foreigners owning companies.

“A foreigner can own 100% of a company through the exchange except for some that are strategic, moreover, buying and selling of shares is tax free in Kenya. We are also working closely with government on encouraging listing of companies including their own public entities. Policies to reduce the cost of trading are also being worked on such as zero VAT on trading. The government has further provided an environment for us to list our new prodicts,” added Mr. Odundo.

Partnerships…
The NSE is a full member of the World Federation of Exchanges, a founder member of the African Securities Exchanges Association (ASEA) and the East African Securities Exchanges Association (EASEA). The NSE is a member of the Association of Futures Market and is a partner exchange in the United Nations-led SSE initiative. These partners help the bourse align its local regulations to international standards as they continually evolve around the world.

In Africa, Kenya is the secretariat of the Africa stock exchange Association and hold capacity building meetings and other relevant discussions to grow the sector. The NSE has also established MoUs with other exchanges, especially the big ones such as the Johannesburg and London Stock Exchanges sourcing support and technologies to enhance service delivery.

Banking on NSEs mission which is linking capital to opportunity to enhance stakeholder value, the Exchange has mapped its plans with those of the regulator strategy in order to have a common guiding document that essentially governs the future of the sector, more of like the vision 2030 of capital markets.

Within the masterplan, there are a set of objectives to be achieved. Execution of the masterplan is the mandate of the exchange as well as the CMA.”

“We believe our regulator can do more to enhance the incentive structure to allow more listings by making the rules a little less difficult for new companies to comply with and try to improve the cost of trading as well as other relevant policies to make our market more competitive. We must keep our eyes open and advice the regulator because our biggest competitors are other exchanges in the market and if we are not attractive, investors will opt for other more attractive exchanges,” retorted Mr. Odundo.

The future of shares trading…
Leaning on the four pillars of sustainable business growth, partnerships, operational excellence and leveraging on innovation and technology, the NSE is focused on growing its business lines while leveraging on each other’s strengths as it invests in people. The NSE aims at having a market consisting of over 100 listed companies with a market gap of almost 40% of the GDP.

“At the end of the day, we want to be a world class market. We want to move this market from what we call the frontier into an emerging market status. Presently, the only Exchange in Africa with this status is the Johannesburg Stock Exchange. We are pushing hard to get to this status,” remarked Mr. Odundo

The CEO says that he aims at having a strong corporate governance organization and a proper governed market because without these values the NSE could collapse.

“We want to promise companies that when they come to the market, they are actually going to be stronger and that they are going to achieve more because they are well run and transparent. We also want to assure investors that when they put their money in this market, it is safe. This can only be achieved through good corporate governance,” concludes the NSE CEO.