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)
9 th ASEA CONFERENCE
NAIROBI STOCK EXCHANGE

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.
Africa however is lagging behind in this


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



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;


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

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.

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
EURONEXT
TSE
Tokyo
NYSE
Nasdaq/Amex
Mexico
(Paris, Amsterdam,
Brussels) 
ASX
Brazil
SGX
MOUs Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand,
Tokyo
HKSE
Source: ASX


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.


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:-
–
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 by

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 fit (and may never fit) the new techno-

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.

:

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 implications of

:
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;


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;

Technology has lowered barriers to entry;
Securities Exchanges that do not invest in information technology infrastructure, do so at the own peril

:
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.
Address regulatory issues
Address training needs
Effective Solutions
2.
Regional Co-operation and co-ordination.

Continental and sub-regional

THANK YOU
Open Floor
NAIROBI STOCK EXCHANGE