The Nairobi Securities Exchange is one of the fastest developing bourses on the African continent attracting foreign investors looking to tap into emerging economies. The last decade saw several listings as well as roll-out of new products such as derivatives and the commissioning of a new trading system. In 2021, the bourse received authorization for launching day-trading. Simply put, Day-trading is the phenomenon whereby an investor/trader buys and sells their shares within the same day. Before, one had to wait for three working days for settlement of any trade. Day-trading is therefore poised to boost trading activity as well as attracting the youth into stock trading.
Despite the funfair on its launch and the 5% discount offered on the second leg of trading, day-trading transactions only accounted for 3.4% of the trades through January. In a market that trades about Kes.22bn worth of shares monthly, day-trading only saw Kes.784 million worth of shares traded. This investor apathy could be attributed to the following:
High transaction costs: When trading on the NSE, there are several fees levied by the broker, the regulators as well as the exchange. This translates to about 2% of the value transacted. With the NSE only offering a 5% discount on a day-trading transaction, the fees are seen to erode any little gains realized. To put this into perspective, the price of a stock has to gain by more than 5% within the day to incentive a trader to sell it within the day. This is a rare occurrence bearing in mind that only a handful of blue-chip stocks change hands daily thus a 5% gain hardly attainable.
Inactivity on some counters: in some of the listed companies, major shareholders control as much as 70% of the share leaving only 30% available to the public. Of the free float say half of it is held by institutional investors (funds) leaving a very small portion of the shares available to the public. As such, counters like WTK, Kapchorua, Kakuzi and Limuru Tea can go for days without their shares changing hands. The floor is therefore left with very few market movers such as Safaricom, Equity and KCB.
To ensure that day-trading takes off, the NSE has to lower the transaction costs by say 50% as it is in developed markets. Also, the bourse ought to ensure adequate free float as well as attracting new listings. This will see investors diversify their holdings and take up day trading which will boost the bourse’s revenues.