The Uganda Securities Exchange (USE) plans to review its membership and trading rules to allow for electronic trading and demutualisation in the biggest legal change since its inception.
The Kampala bourse, which started its operations in 1998, has been using rules similar to those the Nairobi Securities Exchange (NSE) had for a long time. However, the NSE has been regularly reviewing its laws.
The Kampala bourse says it is looking for a consultant to review its current rules by the end of this year, a move that will pave the way for the bourse to demutualise and become a self-regulating organisation so that it can introduce new products and adopt an automated trading system (ATS).
This system will allow brokers to trade from their offices instead of physically going to the trading floor.
“The planned rollout of an electronic system that will accommodate trading activities outside the trading floor has prompted widespread changes in market rules, which are restricted to physical operations at the exchange,” said Joseph Kitamirike, chief executive officer of the USE.
Demutualisation will see the bourse go from being a member-owned organisation to a shareholder-owned company.
The process will eventually see the current members of the securities exchange sell their shares to new shareholders.
USE said that the current rules are not organised in a manner that reflects regulation by asset class, which is necessary because each asset class is priced and traded uniquely.
USE officials said that the new platform will enable minute-by-minute monitoring of the bourse instead of having to wait until the end of the day.
Kenya is going a notch higher with electronic trading by launching an online system that will enable investors to trade shares on the Internet.
However the system will only become operational when the draft Internet Trading Regulations, proposed by the Capital Markets Authority (CMA), are gazetted.
Currently, the USE and Rwanda Securities Exchange (RSE) are the only bourses in East Africa that are using the open outcry method for trading.
Earlier this month, the Dar es Salaam Stock Exchange (DSE) said that it had deployed a wide area network (WAN) that allows brokers to trade from their offices instead of physically going to the trading floor. The WAN took over from a local area network (LAN) which had replaced the open outcry system that had been in place since the establishment of the market.
“Our rules need to be reviewed to reflect transformation. The new market rules will help the USE grow its portfolio of products and investor base by making it easier to trade on its platforms,” said Mr Kitamirike.
He said that the ATS platform is projected to cost $1.2 million and installation works are scheduled to commence by September. The adoption of the ATS is expected to reduce transaction time on the trading floor and make it more convenient.
It will also affect calculation of spreads on shares traded and provide for percentage-based spreads, unlike the current system, which restricts spreads to a minimum of Ush5 ($0.002) per trade. In March this year, the USE wanted to allow for share prices to change by Ushs1 ($0.004) but the plan was suspended at the last minute.
Edgar Mutebi, a stockbroker at UAP Financial Services Ltd said that the use of spreads in shillings for every bid or offer made using the manual system makes calculation in percentages cumbersome and tedious.
“Under the electronic trading platform, spreads will be computed in percentages,” said Mr Mutebi.
The value of the USE, which has nine local and six cross listed stocks, averaged Ush20.25 trillion ($7.7 billion) mid last week, with Stanbic Bank Uganda being the most valuable counter at Ush1.27 trillion ($492.7 million).
Apart from the effect on the calculation of spreads, the new platform is expected to allow for the creation of new products, helping to grow the market.
The East African Securities Exchanges Association has also been working on plans to inter-connect the NSE, USE, DSE, RSE and Burundi’s capital market, a move that will allow traders to buy and sell shares across the region.
“Underlying constraints to growth need to be addressed to unlock huge growth opportunities in the long term,” said Kenneth Kitariko, chief executive officer, African Alliance Uganda.
By Bernard Busuulwa and David Mugwe