From east to west, the continent’s exchanges are modernising and growing


They are far smaller and less developed than their counterparts on first world continents such as Asia and Europe, or even the US. But a growing investment appetite for African stocks among investors has prompted several exchanges on the continent, including Nigeria and Kenya, to start implementing plans to deepen their financial markets, modernise and expand their offerings and tighten regulation.

The JSE, Africa’s premier exchange and the biggest by market capitalisation, keeps playing an important role in supporting smaller exchanges on the continent to grow and achieve their objectives.

Cyrille Nkontchou, Johannesburg-based investor and manager of various Africa-focused funds, says: ‘Africa’s security exchanges are key to the continent’s future development, and they need to continue to improve the conditions of listing, make it cost effective for entrepreneurs to list and negotiate with African governments to make it more attractive to list from a tax point of view.’

The Nairobi Securities Exchange emerged the winner in the Most Innovative African Stock Exchange category in the 2013 Africa Investor Index Series Awards based on its efforts to increase company listings and diversify asset classes. The exchange wants to introduce real-estate investment trusts (REITS), exchange traded funds and derivatives and finalise its demutualisation and list the exchange via an initial public offering.

Donald Ouma, head of market and product development at the exchange says: ‘We want to diversify the asset classes available to investors, and REITS provide an opportunity for retail and institutional investors to access returns in the real-estate sector. In Kenya, the Retirement Benefits Authority has prescribed limits for pension schemes exposure to real estate.’

REITS, which are listed securities, enable pension schemes to widen their exposure and reduce the risk of investing in listed securities. REITS reduce the risk of investing in real estate by making the asset class more liquid and the investment more affordable, while providing exposure to a basket of real-estate assets as opposed to a single real-estate investment.


The exchange aims to provide capital markets with tools that investors can use to manage risk such as futures and options. This will help them manage fluctuations in prices of currencies, interest rates and index movements, and futures and options will also boost liquidity in the underlying assets.

In January 2013 the exchange established the Growth Enterprise Market Segment (GEMS) aimed at supporting small and mid-cap companies.

Firms will also benefit from more exposure and liquidity. To make it easier to list, the normal stringent requirements were slackened and listing fees reduced. This was done without compromising corporate governance requirements, to reassure that investors in GEMS-listed firms operate in a regulated and transparent market.

Across Africa, the Nigerian Stock Exchange (NSE) is aiming to reach $100 million daily trade by 2016 and wants to increase its product offerings to five asset classes of tradable products.

Oscar Onyema, CEO of the NSE, says the most critical aspect of the market is information. ‘Investors rely heavily on information about the company, how well is it doing, what the hard numbers are, and the sentiments about the company. Nigeria has joined the JP Morgan Bond Index, so we’ve seen a significant increase in the number of foreign portfolio inflows into Nigerian Treasury Bonds, which are included in that index. Some 50% of our market activity is driven by foreign investors.’

He stresses the importance of transparency, saying it’s imperative to running of a good market. ‘Since the market is driven by information, investors need to have all the information they need at their fingertips when they need it, so they can make good investment decisions quickly. Standards of corporate governance are always raised and the NSE has partnered with the Convention on Business Integrity to create a rating system. Other codes of corporate governance in the country are the SEC code for Nigerian companies and CBN code for the banks.’

Yvonne Emordi, assistant general manager and head of strategy at the NSE, says current trade consists of equities, fixed income and exchange traded products.

‘We will be expanding the products under these asset classes, eg Nigerian depository receipts. As we have seen with other exchanges in the region, we are also putting some effort towards ensuring we have a competitive fee structure for market participants, especially issuers and investors.’

She says another key area of focus is order flow. ‘As part of our vision we are committed to reaching the $100 million mark in daily value traded by 2016. To meet this objective we are focused on increasing access to our market through our new electronic trading platform, X-Gen, which was launched last year.’

X-Gen is a high-performance, scalable and multi-market trading platform built on NASDAQ OMX’s X-stream technology.

‘It can be enhanced to support the auctioning process and the trading of a wide variety of securities including FGN bonds, commodities and derivatives. This gives us a solid foundation upon which we can build, making it easier, more convenient and faster for us to bring new products to the market, increase access to our market, and expand our market services offerings.’

Emordi says over the last two years the NSE has committed a large amount of resources to making rules, surveillance and enforcement to strengthen regulation. ‘We have automated some of these processes, making it easier for companies to submit critical information to the market in a timely manner. This is done through the X-Issuer portal.

‘In 2014, we will launch a rules portal to better inform market participants of approved rules, their intent and expectations as it relays to the rules and when they come into effect.’

The NSE also recently relaunched the Alternative Securities Market (ASeM). This is the exchange’s market for SMEs that are looking to raise capital from the public. The listing rules for this market are tailored to up-and-coming companies that do not meet other requirements for listing on the Main Board.


‘We have automated some of these processes, making it easier for companies to submit critical information to the market’


Emordi says companies on ASeM are supported throughout the listing process with the help of a designated advisor who ensures they meet all the requirements (pre- and post-listing). These advisors must stay with the business through their time as a publicly held company.

‘ASeM provides access to capital for small companies that may otherwise be unable to raise capital from the public. It provides them with an alternative source of cheaper funding, and exposes them to the benefits of operating with higher levels of corporate governance, preparing and assisting them to achieve sustainable growth,’ says Emordi.

Despite the excellent growth north of the Limpopo, Africa’s giant among exchanges remains the JSE, which has been operating for 125 years. With several firsts, including complete electronic trading, financial and agricultural derivatives and other instruments, it’s a major provider of financial information.

Besides the Main Board, it operates the AltX, an alternative exchange for small- and mid-cap companies in Africa to help them gain access to capital. The JSE’s Socially Responsible Investment (SRI) Index was the first of its kind in an emerging market and acts as a driver for increased responsible and sustainable investment in emerging markets such as SA.

Elsewhere on the continent the Dar es Salaam Stock Exchange operates an alternative exchange –the Growth Enterprise Market – and the Egypt Stock Exchange has the NILEX.

The JSE actively passes on its expertise to other exchanges. Siobhan Cleary, Director of Strategy and Public Policy at the JSE, says the exchange has hosted a capacity building seminar entitled Building African Financial Markets for the last two years, which covers topics of practical relevance to exchanges, market participants and regulators from across the African continent.

‘The JSE seeks to identify topics of relevance to these stakeholders and to identify experts in each of the topics from across the continent and further afield. In each of the years we have had over 100 attendees from more than 20 African countries.

‘The benefit of the seminar is not so much the JSE telling other exchanges how to do things, but the facilitation of a series of sessions where attendees are able to share ideas and hear different perspectives on how to approach issues of concern in their markets.’

She says in addition to the seminar, the JSE regularly hosts visiting exchanges and regulators in Johannesburg, dealing either with specific topics identified by the visiting parties, or covering the JSE and the SA market more generally.

‘Most recently, a JSE representative presented at the Africa and Middle East regional forum of IOSCO [International Organisation of Securities Commissions],a gathering of regional securities regulators on the current regulatory challenges.’

By Louise Brougham-Cook
Image: Fredrik Broden/