[2007-12-04]  Manual Trading Has Affected Gowth of the Stock Market
THE government's slow pace on enacting the Central Depository Processing Act has affected growth of capital markets and further delayed the integration of the East African stock markets, according to the Chief Executive Officer of the Capital Markets Authority, Mr Japheth Kato.

"The absence of automated trading and clearing settlement system is negatively impacting on the market," he said.


"We appeal to government to speed up the passing of the Central Depository Processing Act so that we move forward with the rest of the region."

Kenya and Tanzania have fully automated trading known as the Central Depository System (CDS).

Mr Kato was speaking at a function to launch the country office of Dyer & Blair Investment Bank, one of the leading investment firms in the region, and also to welcome the new General Manager, Mr Njoroge Ng'ang'a.

Trading on the Uganda Securities Exchange still relies on the century-old manual trading method where at the sound of a bell, the broker/dealers at the Trading Floor shout orders to the board writer who records the orders on the board. And a transaction occurs when orders are matched.

While brokers in Kenya and Tanzania take a few hours to transfer traded shares, the manual trading system on USE can only allow brokers to transfer shares a week after trading.

"This reduces liquidity in the market," Mr Abdirahamn Abdillahi CFA, the Dyer & Blair head of regional research, said.

"It is technically impossible to buy and sell the same shares on the same day."

According to him, buying and selling shares on a daily basis adds liquidity in the market. "Daily traders inject a lot of liquidity in the market because they look for small variations; that creates high turnover," Mr Abdillahi said.

A recent IMF report was critical of the manual system of trading, saying the system has hindered growth of the stock market on the continent on the continent.

"Promoting stock market development in Africa would require policies to address institutional and infrastructural bottlenecks and to improve liquidity. The main infrastructural bottleneck is the use of slow manual systems," the report says.

However, the Ministry of Finance and Parliament have delayed the enacting of the necessary legislation which has further delayed the integration of the East African bourse.

"We need to speed up the process of establishing automated trading system," Mr Kato said. "This will greatly improve regional integration of the capital markets."

He said the presence of regional players such as Dyer & Blair will boost integration of the regional market. Dyer & Blair, officially launched its office with the aim of expanding its presence in Uganda and the region.

"Ugandans will benefit from our experience as the leading investment bank in the region," Mr Njoroge Ng'ang'a said.






Source: Copyright © 2007 The Monitor.