Cross-border share trading upgrades to electronic system

Saturday July 27 2013

Trading of cross-listed shares will take four days, down from two months. TEA Graphic

Trading of cross-listed shares will take four days, down from two months. TEA Graphic Nation Media Group

By DAVID MUGWE The EastAfrican

An inter-depository transfer system that allows for the electronic transfer of cross-listed securities is expected to go live on Monday, in a move that will cut down the time it takes to move assets from one country to another.

Trading of shares cross-listed on the East African stockmarkets is now expected to take four days, down from the current period of up to two months, once the electronic settlement of transactions is implemented. 

The new system will allow central depositories to electronically move cross-listed shares, resulting in an increase in the volume of cross-listed shares traded.

Members of the East African Securities Exchange Association (Easea), who include the region’s stock exchanges and Kenya’s Central Depository and Settlements Corporation (CDSC), at a meeting in Zanzibar last week, signed a memorandum of understanding for the establishment of the inter-depository transfer system.

“A memorandum of understanding has been signed and the consultative meeting concluded that this project will go live by Monday, July 29,” said Easea in a press communique.

Easea said the move will not only enhance the liquidity of cross-listed securities, but also substantially reduce the exchange-rate risk.

In the past, the lengthy clearance process slowed trading of cross-listed shares in other markets other than where they are primarily listed.

Some of these stocks have never traded on their secondary listing bourses, and the project is expected to allow investors to take advantage of price differences across the regional markets.

The bourses have been pushing for dematerialisation of all listed shares.

Two weeks ago, Kenya’s Central Depository and Settlements Corporation (CDSC) set November 1 as the effective date for dematerialisation of shares — the conversion of paper certificates to electronic records.

Rose Mambo, the chief executive officer of CDSC, said Kenya joins other countries in the world such as Denmark, France, Canada, Brazil and Mexico whose equity markets are fully dematerialised. 

“Closer to home, we have South Africa, Rwanda and Uganda, though in the latter two the problem of how to deal with cross-listed securities from Kenya, which are certificated, still persists,” said Ms Mambo, adding that the problem will cease once all the countries adopt the electronic transfer model.

Investors who still hold paper certificates will not be able to participate in corporate actions such as bonus and rights issues until their shares are converted to electronic form. This means that investors must also have virtual accounts.

The Dar es Salaam Stock Exchange is working to have two counters dematerialised in the next three months. Its shares are the only remaining ones to go fully electronic.

Having fully dematerialised stock and securities exchanges will also enable interlinking of the bourses, allowing investors to buy shares in any of the four bourses from their home countries.

By the end of the third week of July, 87.95 per cent of the free float of shares and 54.34 per cent of the total market capitalisation had been immobilised at the NSE; 46.11 million shares were still being held in paper certificates, of which 41.54 million shares were being held by strategic investors.

Fully dematerialised securities and stock exchanges, and the electronic transfer of cross-listed securities, are expected to help increase the volume of cross-listed securities traded, which have remained low despite the benefit of listing shares on different bourses. 

“Cross-listing has several merits including the diversification of ownership and shareholding; increased international exposure and visibility for a company and provision of a wide pool of investors from whom to raise funds through rights issues and secondary offers,” said CMA Uganda.

Shares of Nation Media Group and KCB Group, which are primarily listed on the NSE are also cross-listed on the USE, DSE and RSE, while East African Breweries Ltd, Kenya Airways and Jubilee Holdings are cross-listed on the USE and DSE.

Data from the DSE shows that in the first six months of this year, none of the cross-listed counters traded there, compared with 200 Kenya Airways shares traded in 2012 and a combined 11,834 NMG, Kenya Airways and EABL shares traded in 2011. 

“We believe that, once barriers have been removed and the process simplified, trading of cross listed shares will pick up significantly,” said Magabe Maasa, the projects and programmes manager at the DSE.