Managers of African exchanges have selected 30 brokerage firms for cross-border trading, part of an ambitious project to integrate seven exchanges with a combined market capitalization of US$1.25 trillion.
The latest move follows Die African Securities Exchanges Association (ASEA) signed a contract with the United Arab Emirates software company DirectFN for the design and implementation of the software connecting trading systems in the seven markets.
These exchanges are the Johannesburg Stock Exchange , Nairobi Securities Exchange, Nigerian Stock Exchange, Stock Exchange of Mauritius, Egyptian Exchange, Casablanca Stock Exchange and Bourse Régionale des Valeurs Mobilières (BRVM) with eight West African countries – Benin, Burkina Faso, Ivory Coast, Guinea Bissau, Mali, Niger , Senegal and Togo.
The African Exchanges Linkage Project (AELP) is a joint initiative of ASEA and Afrikanis chen Development Bank (AfDB) and aims to promote cross-border trade and liquidity on African stock exchanges.
Four stock exchanges already – BRVM, Casablanca Stock Exchange (CSE), Egyptian Exchange (EGX) and Nigerian Stock Exchange (NGX) – have been successfully connected to the live environment of the Link trading terminal.
“The facilitation of cross-border trading will open the markets to a diverse portfolio and investment opportunities” and increase liquidity, said ASEA President Edoh Kossi Amenove.
“Brokers and investors can access a variety of asset classes in their markets of interest,” added Dr. Amenove.
The AELP link sends orders from a broker on an exchange to a sponsoring broker on the host exchange where the security is listed. The sponsoring broker then enters an order into the host exchanges’ automated trading system.
The sponsoring broker will settle trades on the host market using its local currency in accordance with the rules and practices of the host market and process.
Payment by bank transfer remains a separate process and follows current practice in each market. In addition, holdings will be held on the host market’s central securities depository.
Future phases of the project may include automated cross-border payment systems, the participation of additional ASEA member exchanges and their respective brokers, and additional brokers from the current participating exchanges.< /p>
In November 2018, ASEA received a $980,000 grant from the Korea-Africa Economic Cooperation Fund through the AfDB to facilitate the implementation of the project. The initial phase of the project involves connecting seven exchanges that control over 90 percent ($1.25 trillion) of the continent’s market capitalization.
In East Africa, Uganda, Rwanda and Tanzania have joined forces to create a World Bank-funded funding to implement project that aims to electronically connect regional stock markets to function as a single market to reduce the cost and time involved in trading stocks of companies listed on cross-border markets.< /p>
The three countries have connected their trading systems and to the EAC Capital Markets Infrastructure (CMI) information technology (IT) platform.
Through this, investors in the three countries will buy and sell shares of companies , which are listed in any of the countries without going through different stock brokers.
Pakistan-based InfoTech Private Ltd has been hired to provide the Softw are to provide the trading platforms of Uganda Securities Exchange (USE), Dar es Salaam Securities Exchange (DSE) and Rwanda Stock Exchange (RSE) to connect their trading platforms so that they can operate as a single market in real-time.
However, Kenya operates the largest stock market in the region in terms of market capitalization and the number of listed companies withdrew from the project in 2015 after expressing dissatisfaction with how the Pakistani company had won the contract and expelled for irregularities in procurement. For its part, Burundi is expected to join the bandwagon once it has established its own stock exchange.