Kenya has termed the African Exchanges Linkage Project (AELP) which went live on Friday as a key driver to continental trade.
The Nairobi Securities Exchange (NSE) boss Geoffery Odundo said it will propel market liquidity and trading growth while giving options to investors across the markets.
"The cross-market platform will improve liquidity, offer greater incentives for privatisation, increase incentives for policy reforms and stabilise the region's financial infrastructure, "Odundo said.
AELP is a flagship project of the African Securities Exchanges Association (ASEA) and the African Development Bank (AfDB)
The inter-connectivity platform enables the trading of exchange-listed securities across seven participating securities exchanges, for the first phase.
These are West Africa’s regional Bourse Regionale des Valeurs Mobilieres (BRVM), Bourse de Casablanca (Morocco), Egyptian Exchange (EGX), Johannesburg Stock Exchange (JSE, South Africa), Nairobi Securities Exchange (NSE, Kenya), Nigerian Exchange Limited (NGX) and Stock Exchange of Mauritius (SEM).
The Botswana Stock Exchange (BSE) and Ghana Stock Exchange (GSE) will kick off the second phase of the AELP, with technical connectivity to the Link expected to commence in 2023.
These markets control over 90 per cent ($1.25 trillion) of the continent’s market capitalisation.
Odundo added that trading infrastructure harmonisation through the link is expected to ease existing trading processes and potentially reduce the cost of trading across African capital markets.
The continent is warming up to the African Continental Free Trade Area (AfCFTA), a deal expected to create a continent-wide market embracing 55 countries with 1.3 billion people and a combined GDP of $3.4 trillion.
Its first phase, which took effect in January 2021, would gradually eliminate tariffs on 90 per cent of goods and reduce barriers to trade in services.
That could raise income by seven per cent, or $450 billion, by 2035, reducing the number of people living in extreme poverty by 40 million, to 277 million, according to a World Bank.
The AELP Link sends orders from a broker on one exchange to a sponsoring broker on the host exchange where the security is listed.
The sponsoring broker will then put an order into the host exchanges’ automated trading system.
The sponsoring broker will clear and settle trades in the host market using their local currency in compliance with the host market’s rules and practices.
Payment through bank transfers remains a separate process and will follow the current practice within the respective markets. In addition, stocks are held on the host market central securities depository.
According to ASEA, future phases of the project may include automated cross-border payment systems, participation of additional member countries and their respective brokers and additional brokers from the current participating exchanges.
In November 2018, ASEA received a grant of $980,000 from the Korea-Africa Economic Cooperation Fund via AfDB to facilitate the implementation of the project.
The new continental trade linkage is coming almost seven years after Kenya pulled out of the much-delayed World Bank East Africa market linkage project.
Uganda, Rwanda and Tanzania joined forces to implement a project that aims to connect regional stock markets electronically so as to operate as a single market with a view of reducing the cost and time of trading in shares of companies listed on markets across the borders.
The project was financed by two IDA grants totaling $26.5 million comprising an original grant of $16 million, and an additional grant of $10.5 million.
Approved on January 31, 2011, it became effective on June 20, 2011, with an initial closing date of March 30, 2014.
Even so, according to World Bank, the initiative closed six years and nine months behind schedule on December 31, 2020.
It could have seen investors in the three countries buy and sell shares of companies listed in any of the countries without going through different stockbrokers.
Pakistan-based InfoTech Private Ltd had been contracted to provide the software connecting the trading platforms of the Uganda Securities Exchange (USE), Dar es Salaam Securities Exchange (DSE) and Rwanda Stock Exchange (RSE) to enable them to run as a single market in real-time.
However, Kenya which runs the largest stock market in the region in terms of market capitalisation pulled out of the project in 2015 after expressing dissatisfaction with how the Pakistan firm was awarded the contract citing procurement irregularities.
