Kenyan bourse looks to attract companies with its unquoted securities platform

The Nairobi Securities Exchange (NSX) recently introduced an unquoted securities platform in an effort to attract companies to the bourse amidst a listing drought that has persisted for several years. This platform allows for the trading of securities of unlisted companies, providing investors with a new opportunity to diversify their portfolios and participate in the growth of promising businesses. David Ngugi Gitau, an investment analyst at Cytonn, shared insights on the potential benefits of the unquoted securities platform. He explained that the infrastructure is designed to facilitate trading, clearing, and settlement of securities for unlisted companies. Prior to the launch of this platform, trading in unlisted companies was only possible through unofficial open or over-the-counter markets. The introduction of this platform now formalizes and streamlines the process, making it more accessible and efficient for investors. One of the main opportunities presented by the unquoted securities platform is the enhancement of liquidity for unlisted securities. Previously, trading these securities required investors to locate buyers or sellers informally. With the new platform, liquidity is expected to increase, providing shareholders with greater flexibility and market participation. Additionally, the platform enables price discovery, allowing investors to make more informed decisions based on market dynamics. Despite the potential benefits, investor participation in the unquoted securities platform has been relatively low initially. This is attributed to the novelty of the product and the need for awareness and education among investors. Efforts are being made to increase sensitization and attract more traffic to the platform as investors become more familiar with its operations. The Capital Markets Authority (CMA) is currently reviewing listing rules to stimulate more activity on the exchange. Various reforms are being considered to modernize and streamline regulations, making it easier for companies to list on the NSX. One of the key challenges hindering listings in the past has been the stringent rules and regulations governing the exchange, deterring potential issuers. In comparison to global trends, the NSX has experienced a dearth of IPOs in recent years, signaling a reluctance among investors to engage with the stock market. The strict regulatory environment in the local capital markets has been identified as a major deterrent for companies seeking to list. Efforts such as the introduction of the Growth Enterprise Market Segment with less stringent requirements have not been successful in attracting quality listings. When asked about the timing of the launch of the unquoted securities platform, Gitau acknowledged that the NSX may have been relatively late compared to other Sub-Saharan African markets in introducing such a platform. He noted that the local capital markets have historically been innovative, but the delay in implementing this initiative suggests a need to catch up with industry trends. Looking ahead, the performance of the Nairobi Securities Exchange in the first weeks of the year has shown promise. The NSE All-Share Index has gained momentum, driven by large-cap stocks in sectors like banking and telecommunications. Notably, SafariCom stock has reached all-time highs, reflecting growing investor interest. With many stocks trading at attractive valuations, investor sentiment is positive for 2021, indicating a potential uptick in market activity and enthusiasm. In conclusion, the introduction of the unquoted securities platform represents a significant step towards revitalizing the Nairobi Securities Exchange and attracting new listings to deepen the market. By modernizing regulations, enhancing liquidity, and promoting investor participation, the NSX aims to position itself as a dynamic and attractive investment destination in the region.