East African countries are moving closer to striking a deal on the controversial capital markets infrastructure project to link the four regional stockmarkets.

Kenya had pulled out of the project, citing anomalies in the procurement of the software.

But plans to harmonise fees and commissions charged to investors trading in these markets remain major hurdles because the exchanges are still at different levels of development and operate under different economic environments.

The EastAfrican has learnt that Kenya is slowly relaxing its hardline position as the project is seen as being crucial to the integration of the regional financial markets.

READ: Kenya pulls out of EA capital markets project over tender

This news came even as it emerged that the EAC Secretariat, the implementing agency of the World Bank-funded project, is unlikely to cancel the contract awarded to Pakistan-based software firm Infotech and order a fresh tendering process as demanded by Kenyan authorities.

Kenya’s Capital Markets Authority (CMA) confirmed that despite reservations over its quality as well as compatibility of the software with the Nairobi Securities Exchange’s clearing and settlement system, the regulator had facilitated a stakeholder meeting on the project in Nairobi last month (December 2015). The outcome of the meeting is expected to inform a decision on whether Kenya will participate in the project.

“The discussions on the way forward are still going on. Infotech informed market participants about the software, which will inform how to move forward,” said Paul Muthaura, acting chief executive of the CMA.

The meeting involved training end users such as stockbrokers, investment bankers and fund managers in the use of the software.

$3.8 million software

Sources privy to the ongoing discussions said Kenya will participate in the project because the country is a key player in the regional financial markets.

Nairobi Securities Exchange chief executive Geoffrey Odundo confirmed that they had participated in the sensitisation programme but denied that a decision has been made on Kenya participating in the project.

“We have not agreed on the progress. We told them that the other partner states can continue. The testing of the system is going on but we are not participating in the project. Once our issues are addressed, then we can reconsider our position,” said Mr Odundo.

“To my knowledge, the vendor is currently on site,” said Moremi Marwa, chief executive of the Dar es Salaam Stock Exchange.

The $3.8 million software is intended to make trading in shares across East Africa cheaper and faster.

It will link the trading platforms of the Nairobi Securities Exchange, Uganda Securities Exchange, Dar es Salaam Stock Exchange and Rwanda Stock Exchange and enable them to operate as a single market even though they are in different locations.

Burundi is yet to set up a stock exchange of its own.

The connection will allow investors to buy and sell shares of companies located in different EAC countries.

The project involves the acquisition and installation of an information technology platform — the Smart Order Routing System — linking the clearing and settlements systems of the region’s stockmarkets.

However, even as EAC member states look to integrate their capital markets, it has emerged that listing fees, commissions and other charges cannot be harmonised across the region.

Investment costs

The East African Securities Regulatory Authorities (EASRA), an association of regional exchanges, said it was still premature to think of harmonising investment costs.

“The stockmarkets operate at different levels of development, market situations and economic environments. We can harmonise our standards, rules and regulations but not fees and commissions,” said Pierre Celestin Rwabukumba, EASRA chairman and chief executive of the Rwanda Stock Exchange.

Currently, the cost of trading in shares and bonds varies across the EAC member countries.

READ: EAC bourses working on uniform fees for trades in bonds, shares

Kenya and Uganda appear to be relatively expensive destinations for investors looking to buy shares of listed companies in the region.

They are closely followed by Tanzania and Rwanda, according to data from the respective stockmarkets.

An analysis of the various fees and commissions imposed on investors by the four countries shows that while Kenya and Uganda are costly in stock trading they are relatively cheaper destinations for investors seeking to buy and sell bonds compared with Tanzania and Rwanda.

In Uganda, share traders pay 2.1 per cent of the value of the transaction as levies while charges relating to bond trading stand at 0.05 per cent of the value of the transaction.

In Kenya, transactions on the securities exchange whose value falls below Ksh100,000 ($959) attract a commission of 2.1 per cent while bond transactions attract a commission of 0.034 per cent.

In Tanzania, an equity investor will pay two per cent on a transaction of up to Tsh10 million ($4,497) and 1.8 per cent on the subsequent Tsh40 million ($17,991).

Investors in Tanzania’s bond market pay 0.0625 per cent on a transaction valued up to Tsh40 million ($17,991) and 0.03125 per cent on any transaction whose value exceeds Tsh40 million ($17,991).

In Rwanda, an investor in the stockmarket pays a total of 1.71 per cent on the value of a transaction of up to Rwf100 million ($1.31 million).

For transactions above Rwf100 million ($1.31 million) net brokerage commission is open to negotiation and subject to a minimum of 1.25 per cent.

An investor in Rwanda’s bond market is charged a total of 0.18 per cent of the value of the transaction when buying or selling a bond.