NSE Trading Platform: The Expected Market Changer

09 May 2012

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0103F01.NSE-Trading-Session.jpg - 0103F01.NSE-Trading-Session.jpg

 Trading session at NSE

Goddy Egene writes that going by the attributes of the new trading platform- NASDAQ X-Stream- the Nigerian Stock Exchange (NSE) plans to deploy in the second quarter of 2013, the  stock market would witness a positive turnaround

The trend at the Nigerian stock market in the past weeks have given hopes to investors, operators,  regulators and  other stakeholders  that current efforts to reposition  the market  have not gone in vain.

This so because the market has had a positive run, which lifted its  year-to-date growth (YTD) growth to  9.3 per cent last Monday compared with a 0.38 per cent decline as  at the end of the first quarter of  the year.

Considering the fact that the market declined by over 16 per cent last year, the performance so far, according to market analysts,  is reassuring that there would be positive turnaround in the market this year.

Apart from the corporate earnings by some companies that have spurred the growth, enhancement in the regulatory environment  has also been linked to  improving indicators on the Nigerian bourse.

However, operators believe  the Nigerian capital market is set for a bigger revolution  by this time next following the planned deployment of a new trading platform by the  NSE. Known as NASDAQ X-stream, the trading platform would replace the current- trading machine-Horizon.

The  NSE last month  signed the  deal to  supply the new trading platform with officials of  NASDAQ OMX, which is  a multinational financial services powerhouse. The latest edition of the X-stream technology matches orders in under 100 millionths of a second. 
Officials of NASDAQ OMX explained that X-Stream   is built on support business growth and  is a proven multi-asset trading solution that combines exceptional performance and rich functionality with unparalleled flexibility and adaptability. 

X-stream’s flexible architecture is a powerful tool that enables marketplaces to grow and adapt as their business grows and requirements change.

The Vice-Chairman of NASDAQ OMX, Mr. Sandy Frucher, who was in Nigeria for  the contract signing ceremony, declared that NSE had embarked on a good journey that would revolutionalise   the nation’s capital market and make it  a leader  in the African continent  very soon.

NSE Technology Transformation
Trading on the NSE has been automated  since 1999. Specifically,  the NSE transited from Open Outcry Trading (OOT) used since commencement of its operations in 1961 to the Automated Trading System (ATS) on  April 27, 1999. That was some 38 years after commencement of business operations.

Also, the Central Securities Clearing System (CSCS) Limited, the share depository, commenced operations using the Equator System on April 14,  1997.

According to the Chief Executive Officer of the NSE, Mr. Oscar Onyema, these key steps transformed the Exchange because those early technology building blocks improved the efficiency of the market in numerous ways.

After automation of the trading, remote trading was also introduced by the Exchange in 2005. Remote trading is a  system that enable stockbrokers to trade in the comfort of their offices without going to the trading floor of the NSE.

“Currently, there are well over 100 remote trading connections in Lagos and a commensurate deployment of same across branches nationwide with an increasing number of dealing member firms accessing the exchange system remotely across the country,” Onyema said.

The NSE boss disclosed that last year, the NSE performed an audit on its technology infrastructure to identify opportunities for improving access to the NSE’s network.

“And in the first quarter of 2012, the exchange launched its low-latency, high-performance, high-capacity, low-cost broker virtual private network (VPN).  This supports the NSE’s strategy of enabling cost effective and efficient execution of trades from broker-dealer offices.  It will form a major backbone of the ongoing technology transformation programme,” he said.

Deciding on the New Platform
Speaking on how the new trading system was selected, the Executive Director, Market Operations and Technology, Mr. Adeolu Bajomo,  said the process was  a rather rigorous one for  the exchange  involving key global players and the consideration of competitive proposals by the exchange.

“We undertook a detailed and robust evaluation process that culminated in the selection of NASDAQ OMX X-Stream, a system currently used by over 20 exchanges around the world and reputed to be one of the leading trading platforms in the market,” he said.

Bajomo  explained that  NSE and NASDAQ OMX carried out a joint design analysis between September and November 2010 and in July 2011 that covered issues ranging from project timeline, risks system components, servers and connectivity; installation, training and testing to go-live support.

“With this new system, equities  plus  a fully functional Bond Market  and exchange traded funds (ETFs) will be accommodated in phase one of the project while Derivatives will be introduced in the second phase. The System will also enable the NSE to host other Exchanges,” he said.

Benefits of the Platform
Explaining some of the benefits of the new trading platform, Onyema said the trading platform upgrade was a strategic move and a significant step in achieving the target of making the NSE “the gateway to the African markets.”

“The new trading platform will enable The Nigerian Stock Exchange have the fastest trading engine in Africa and investors, through their stockbrokers, will have real-time access to market prices, their portfolios and be enabled to execute market orders in near real-time from anywhere and on a wide range of devices including smartphones,” he added.

According to him, the new system would also improve transparency and provide efficient price discovery in the market, among other benefits, stressing that investors in the market would benefit significantly from the system upgrade as it would afford them the opportunity to diversify their investment portfolio.

Operators’ Enthusiasm
Although Bajomo had said the deployment of the new trading system in the second quarter of 2013 would be determined by the readiness of operators,  brokers who spoke with THISDAY said  getting prepared for the commencement of the platform would not be a  difficult task.

According to operators, they would work closely with the exchange to acquire the skills and knowledge required for efficient handling of the platform.
Brokers agreed that the new platform would bring many benefits to all stakeholders in the market.

The Managing Director/Chief Executive Officer of Partnership Investment Company Plc, Mr. Victor Ogiemwonyi, said the new trading platform would enhance trading experience for brokers and their investors.

“It will also put us in the pole position to  be the premier  gateway for capital trading in the continent. The choice of NASDAQ OMX trading platform is also forward looking, since we are buying from a well-known name and operator that will continue to   support the technology,” he said.

To the Managing Director of Investment Centre Limited, Mr. Ifeanyi Odunwa,  the Nigerian capital market would enjoy many positive impact from the new trading platform.

“This new trading platform will have several positive impact on our stock market. Firstly, it will revolutionalise trading activities since it is very advanced and has multifunctional capabilities for simultaneous trading on equities, bonds, derivatives and other related market instruments. Secondly, its operational speed is amazingly fast and will drastically reduce deals execution time in the market,” he said.

Odunwa noted that   since it had capabilities for hooking onto had-held  devices and mobile phones, it will enable the online real-time monitoring of  trades.

“It is  already in use in most advanced stock markets in the different part of  the world so it  provides a unique opportunity for market  integration if  the need arises. Besides,  it will greatly assist stockbrokers and investor price discovery, and it will be ready to deepen  our stock market upon listing and trading of big ticket transactions in shares of telecoms, oil and gas as well as  other large corporate  operating in Nigeria including other cross-border listed in some companies, which have hitherto  avoided our market,” he said.

Speaking in the same vein, the Chief Responsibility Officer,  of Value Investing Limited, Mr.  Seye Adetunmbi, said the new trading platform would aid market efficiency, make NSE competitive vis-à-vis international best practices and  boost investors’ confidence.

SEC’s Support
Already the Securities and Exchange Commission (SEC) has  indicated its readiness to support the efforts of the NSE to  transform the Nigerian bourse.

Director-General of SEC, Ms. Arunma Oteh,   said: “The management of the NSE is overhauling its processes, technology, regulation and governance. The exchange has set a target market capitalisation of $1trillion by 2016 and has outlined a strategy for transforming the market to a world-class status within the same time frame. We are fully supportive of the initiatives of the NSE leadership and shall build on our partnership in 2012.”

Going Forward
Oscar declared recently that as a self-regulatory organisation in the market,  the NSE  played an important role in setting and enforcing rules to ensure fair, orderly and transparent market operations. “Since we assumed office last year, the team has left no stone unturned in ensuring that we lay the right foundation for restoring market integrity. Our promise is to provide all stakeholders with a first rate platform that they can build and grow their businesses and services on,” he said.

According to him, despite inevitable challenges, the capital market remains an indispensable vehicle to ensure Nigeria’s continued development.

He stressed that the NSE had a single-minded objective of creating an African institution that would compete effectively in the global market in a manner that showcases the best of African enterprises to the global community.

Onyema noted that going forward, the market would witness more liquidity, explaining that the recently unveiling of 10 market makers  would assist in facilitating that liquidity.

The unveiling of the 10 market makers was another milestone in the history of our exchange. With this in place, we will soon start short selling and securities lending to further increase efficiency and liquidity in the market by making available securities where they are needed.

These initiatives are a vital part of increasing the vibrancy, depth and competitiveness of the market. We have also put in place rules to allow companies to repurchase outstanding shares through a share buy-back process. This would facilitate the repurchase by a company of a portion of its outstanding issued shares. The aim is to improve shareholder value and  meaning   companies that feel their share prices are undervalued may engage in share buy-back to shore up the prices while also re-organising their capital structures,” he said.

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