NSE Day-Trading Yet to Gain Traction in First Year

In 2022, investors bought shares worth Sh4 billion at the Nairobi Securities Exchange (NSE) on the new day-trading platform, accounting for 2.13 percent of total deals made that year as the invention struggled to gain traction.

According to NSE data, day trading accounted for 2.13 percent of the year’s total deals of Sh188.58 billion in the financial instrument’s first full year of operation.

Day trading allows investors to buy and sell the same company’s shares multiple times in a single day in order to profit from small price movements and, in some cases, to capitalize on events that influence share prices.

On November 22, 2021, day trading was introduced in an effort to increase daily turnover and deepen liquidity on the stock exchange.

Previously, investors could only profit from price movement on a given day if they sold their stock a day after buying it.

Analysts have linked the low proportion to the concentration of institutional investors, particularly pension funds and fund managers, who tend to have lower risk appetites and can execute trades more slowly.

This also implies that, aside from fewer high-net-worth traders with larger accounts as a result of transaction costs, the financial instrument may not have helped retail investors who were supposed to leverage on the same-day trades.

“It is the first full year of day trading and our market activity is usually driven by local and foreign institutions investors who are quite slow to make decisions; also evident by the derivatives market,” said Kenneth Minjire, senior associate for debt and equity at stockbroker AIB-AXYS.

“It also highlights their credit risk, especially the off-shore investors who are looking for investments that would cover their risk before trading.”

The NSE, which serves as the primary entry point for foreigners looking to invest in East Africa, has implemented innovations aimed at increasing trading and liquidity, including same-day trading.

However, it declined during a year in which the equities market saw share declines due to decreased interest in emerging markets following an increase in interest rates in established markets like the US.

The introduction was followed by a flight of foreign capital from the NSE, where their participation has fallen below 50%.

However, the market for futures has been rather quiet, recording a turnover of Sh30.53 million in the three months ending in September as opposed to Sh29.31 million in the quarter ending in June.

Deals climbed from 383 to 486, a rise of 26.89%, over that time.

This year, day trading activity is anticipated to continue increasing thanks to commercial and investment banks’ increased decision-making agility and desire for high-risk activities.

Day trading saw a four-fold increase from Sh48.33 million in a comparable period in 2022 to Sh193.31 million in the first two weeks to January 13.

“We expect a vibrant market in the second half that will go hand in hand with the day trading activity,” added Mr Minjire.

Since the coronavirus first appeared, day trading has gained popularity on a global scale, with activity drastically increasing in the first quarter of 2020 compared to the previous year in areas like India, the US, and the UK.

However, it is primarily done by seasoned traders who are well-versed in the market and stocks.

Through the Public Offers and Listing of Securities draft regulations 2022, the Capital Markets Authority (CMA) is thinking about reducing transaction taxes of 0.12 percent for day trading to increase daily market activity and domestic investor uptake.

After a week of coming online, the NSE granted a five percent fee rebate to stimulate uptake, charging 0.114 percent instead of the standard 0.12 percent.

The 0.12 percent and 0.08 percent charges on the CMA and Central Depository and Settlement Corporation, respectively, did not alter.

The exchange extended the waiver of its fees for equities day trades in September 2022, enabling investors to benefit from ongoing market fluctuations at a lower cost.