Cross-listed firms in regional markets hard-hit by decline in trade volumes

Monday October 16 2023

Kenya’s Capital Markets Authority CEO Wycliffe Shamiah. PHOTO | NMG


East Africa’s cross-listed firms have been hit in regional markets as a result of declining trade volumes and poor liquidity of shares, signalling the rough ride that policy makers are facing in the integration of regional capital markets.

This is largely due to a limited supply of cross-listed shares, exchange rate risks and manual settlement operations, which are choking cross-border trading activity, while obstructing regional investors from owning part of the region’s big companies.

Other factors hindering trading are the investor exposure risks in the region, trading in multiple currencies, and absence of harmonised regulatory framework and the varying levels of development of regional stock markets.

Wycliffe Shamiah, Kenya’s Capital Markets Authority (CMA) CEO, told The EastAfrican that trading in cross-listed shares in the region has largely remained manual.

Read: Homegrown multinationals gain firm foothold in EA

It is emerging that even though companies make strategic decisions to list their shares in other jurisdictions away from their primary markets, investors are finding it difficult to trade in cross-listed shares, since they are largely held by investors domiciled in the primary markets.


“There are practical challenges that come with the expectations that cross-listed securities are going to experience have heavy trading,” said Mr Shamiah.

“You must know that for you to trade shares, someone must buy and for you to buy someone must provide the shares. If you have a market that doesn’t have this stock of shares, then that market will not trade in those shares. So, this challenge is still there and, of course, it would have been addressed by automation of, maybe, our various registries and the infrastructure, which allows people to buy from where they are.”

Listed companies cross-list shares with hopes of reducing the cost of capital raising, diversify their investor base, increase the share price, improve liquidity of the stock, improve visibility and shore up the market share for their products and services.

Regional markets

Some 10 companies have cross-listed their shares in the region. These are KCB Group, Nation Media Group, East African Breweries Limited, Kenya Airways, Equity Group, Centum Investments, Jubilee Holdings, Umeme Ltd, the collapsed Uchumi Supermarkets and the Bank of Kigali.

Read: Centum losses more than triple to $51m

Many East African listed companies have not been keen to cross-list on the regional markets, because of exchange rate risks and low volumes of trading in shares.

For instance, in 2016, Centum Investments shelved plans to cross-list its shares on the Rwanda Stock Exchange (RSE) and the Dar es Salaam Stock Exchange (DSE), citing lack of liquidity in its cross-listed shares in Uganda as a result of a difficult and lengthy settlement process.

The lack of activity in cross-listed firms’ shares has also been blamed largely on the failure by the issuing companies themselves to increase their free float (shares available for trading), the incompatibility of trading and settlement systems in the region, a lack of investor awareness among the East African Community partner states.

While several Kenyan companies have cross-listed their stocks on the Ugandan, Tanzanian and Rwandan markets, the Nairobi Stock Exchange has not benefited from reciprocal listings.

Second to cross-list

In 2018, Rwanda’s Bank of Kigali became the second firm in the region to cross-list its shares on the NSE, after Uganda’s utility firm Umeme, which cross-listed in 2012.

It is argued that integrating the central depository systems of the region’s bourses would hasten trade in cross-listed shares and boost liquidity.

The EAC member states are working on a project to harmonise the electronic settlement systems of four stock exchanges, NSE, DSE, USE and RSE, to ensure that the bloc’s citizens buy and sell shares listed on those exchanges from their respective countries.

But the project, which seeks to link the regional bourses electronically into a single market, is marred with controversy, after Kenya pulled out citing irregularities with the process of procuring the software.

Read: Rwanda stockmarket eyes connection to regional bourses

So far DSE, RSE and the USE have hooked on to the system but it is yet to go live.

Kenya has demanded that the EAC Secretariat replace the current software, which is more than six years old.

Nairobi also wants an agreement reached on which country will bear the cost of maintaining the system.

A Pakistan-based InfoTech Private Ltd had been contracted to provide software connecting the trading platforms of the USE, RSE and DSE to enable them run as a single market in real time.

Burundi is still developing its stock market.