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In the early hours of April 16, Ademola Adeoye walked leisurely across different sections of his living room in Oluyole area of Ibadan, Oyo State, completely unperturbed by the chaos of events happening outside of his immediate environment. A Lagos-based stock analyst and policy expert, Mr Adeoye moved to his Ibadan home shortly before the Nigerian government declared a nationwide lockdown to arrest the spread of coronavirus in the first quarter of the year.

Hours afterwards, he would join hundreds of other Nigerians and capital market enthusiasts across the world to witness the first-ever Digital Closing Gong ceremony hosted by the Nigerian Stock Exchange via Instagram Live.

The programme, held in honour of the contributions of Sterling Bank Plc to the fight against Covid-19 in Nigeria, took place in Lagos but was broadcast to a global audience via the social networking site, Instagram. Mr Adeoye, sitting at a spot located about 130 kilometres away from the Lagos location of the Nigerian bourse, joined the celebrations online.

“It was an immensely successful and disruptive move,” 39-year-old Mr Adeoye told PREMIUM TIMES in an interview. “It shows the promise of digital technology in the growth of Nigeria’s capital market and the larger economy.”

The finance expert said such moves must be encouraged to eliminate the barrier associated with physical activities at this critical period and deepen the adoption of digitally compliant means of participation in market activities.

“I enjoyed the ceremony, and those of us who witnessed the ‘open outcry’ era could not but marvel at the disruption brought by technology over these years,” he said.

‘Open Outcry’: the genesis

Before the advent of disruptive technologies, the ‘open outcry’ system was in place in stock markets across the globe. The system is a trading method used in stock exchanges where traders use verbal and nonverbal signals to communicate. Before the adoption of electronic trading, financial trading was conducted via open outcry, with stockbrokers typically shouting and using hand signals to communicate in melodramatic fashions.

Back in the day, stockbrokers yell how many contracts are for sale and at what price, and they also use hand gestures in order to get through to one another despite the cacophony. Some experts believe the open outcry method is effective because it makes possible a structured process that ensures bids and offers are matched in ways many considered quite efficient.

The system, because of its interpersonal elements, allows traders to appraise facial expressions that reveal a lot about the concerned parties, including emotions that may not be visible in electronic trading. The intensity of the chaos may also signal the market volatility.

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Nigeria stock market made a significant leap in 1997 as it joined the global markets by transiting from manual clearing, delivery and settlement system to an electronic system with the commencement of its central depository, otherwise known as the Central Securities Clearing System (CSCS).

By 1999, the Exchange had transited from the manual system of trading called Open Outcry or Call-Over or Pit Trading to the Automated Trading System (ATS). The ATS refers to the use of computers to execute transactions on the market.

But it is often argued that liquidity is more enhanced in open outcry than electronic trading. Till date, the open outcry is still being used interchangeably with electronic, even in exchanges like the New York Stock Exchange, Chicago Board of Trade (CBOT) and others.

Since the coronavirus pandemic hit capital markets around world, there has been a significant improvement in peoples’ adoption of digital technology to leverage remote trading and participate in market activities. For many Nigerian stakeholders in the capital market, the adoption of these technologies and the attendant disruptions have shown how much technology would shape the future of trading across bourses in Africa and the world.

The Nigerian bourse has equally shown readiness to address the concerns around remote trading while providing stakeholders the necessary digital platforms to operate in the market without much challenge. This, experts said, is essentially a function of the years of preparedness of the exchange, through technological transitions made under the administration of Hayford Alile, the Director-General and his successor, Ndi Okere-Onyuike, now amplified by the Oscar Onyema-led leadership of the Nigerian bourse.

Digital technologies during Covid-19

In March, the Nigerian government ordered a lockdown of the economy and placed a ban on air travels, amid other measures to contain the spread of the coronavirus.

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Mr Onyema said that against the backdrop of this development, the NSE quickly implemented a business continuity plan that included, initially, temperature checks, the use of hand sanitizers, and in-office social distancing. It would later transition to remote work, which would not have been possible had the groundwork not already been in place.

Nigerian-Stock-ExchangeNigerian-Stock-Exchange Nigerian Stock Exchange (NSE)

Within the period, as investors move to safer assets, the NSE’s gold ETF performed quite well, even among foreign investors. The fixed income market also remained active due to increased government borrowing and corporate issuances. Similarly, domestic investors stepped into spaces in the market already vacated by foreign investors.

Across the world, the impact of the coronavirus was immense despite the ease of lockdown for economic reasons. Within the period, many African capital markets were bearish, from Namibia through Egypt, Morocco, Kenya, Ghana, Malawi, and South Africa.

To address the concerns thrown up by the disruption brought by the virus during lockdown, several exchanges across the continent and beyond had to intensify efforts in deepening digital inclusions in the capital market.

Global, Regional trend

In May, the Johannesburg Stock Exchange (JSE) welcomed the Satrix SA Bond ETF to the main board of the JSE in its first virtual listing, and the first ETF listing in 2020. The Exchange Traded Fund (ETF) was designed to track the S&P South Africa Sovereign Bond year Index, which allows investors to automatically reinvest their coupons. The index is a market value-weighted and consists of bonds with maturities of one year or more.

Valdene Reddy, Director of Capital Markets at the JSE, said the ETF was perfectly suited for investors needing a more defensive asset class while chasing inflation-beating yields and capital growth. Analysts said the move was important amid bearish trend in the market, due to economic downturn.

Similarly, within the same period, the Nairobi Securities Exchange (NSE) opened up its platforms to bankers, stockbrokers and asset managers as well as individuals, wishing to trade from their homes.

In what could be the biggest test to the bourse’s automated trading system (ATS), traders were advised to access the bourse from remote locations or their homes. But to address technological hitches, log ins from home or other outside locations to the NSE was only made possible through designated computers that can be accessed through a secure remote connection.

A significant fraction of traders and dealers could relocate to working from home, although experts warned that it could affect liquidity, volumes and prices at the market.

While equity markets around the world shut down their physical locations as a precaution, leaving traders with the option of accessing the trading floor electronically, others sought to devise means to leverage technology to keep the market active.

Within this period, in a bid to break the barrier associated with physical contact in the market, the Nigerian Stock Exchange has been operational through remote trading, leveraging on technology to ease operations.

NSE makes bold moves

First, on April 15, the Nigerian Stock Exchange published its guidance on virtual Board, Committee, and Management Meetings for stakeholders.

The guidance was in response to the shift from conventional physical meetings to virtual meetings precipitated by the COVID-19 pandemic, and the critical need to protect investors’ interests. The NSE said it is also one of the Exchange’s “Thought Leadership” initiatives, designed to provide direction to market and other stakeholders on carrying out successful, productive, and rewarding virtual meetings at the time and other times when in-person meetings are unfeasible.

Commenting on the Guidance, Chief Executive Officer of the NSE, Oscar Onyema, said, “The goal is to ensure that when companies opt for virtual participation in meetings, they are accessible, transparent, efficient, and cost-effectively managed, while meeting the important business and corporate governance needs of all relevant stakeholders.”

Beyond that, the exchange is leveraging on its existing digital platforms to ease market operations.

Leveraging on “X” innovations, others

For instance, the X-GEN, a robust technology platform that has helped deliver several benefits with innovative trading capabilities, has come handy in the midst of the pandemic. The platform has helped market operations, alongside the Portal X-Issuer, a secure web-based portal designed to enable Issuers file information in an electronic format to the exchange, improving their compliance and regulation experience. The portal also enables issuers to submit copies of information to the exchange digitally, thereby avoiding the need for physical interaction.

Similarly, the X-BOSS, a broker supervision system, has provided a secure central repository for information about dealing members in order to facilitate compliance.

The X-Whistle on its part allows whistleblowers report possible violations of the rules and regulations of the market, and other fraud related activities.

For X-Smart, a surveillance tool built around artificial intelligence, the goal is to create a safe and secure trading experience help strengthen the integrity of the market. It allows the NSE to monitor market manipulation, gather intelligence, carry out traders’ monitoring and analysis, and execute risk-based supervision of flagged participants.

NSE performance amid the pandemic

Relying essentially on the digital technology that allows remote trading, the exchange has seen positive performance across asset classes amid the COVID-19 pandemic.

In the first quarter of the year, the Nigerian bourse closed in the red with a negative return of about 20.65 percent, as against a negative return of 1.24 percent in the first quarter of 2019. The market capitalisation lost about N2 trillion in the first quarter of 2020.

Performance however came out positive in April, amid lockdown and economic downturn, as the market performed with a gain of about 8 percent to close at 23,021.01 points, from an opening point of 21,300.47. Market capitalisation was up by N896 billion, from an opening value of N11.101 trillion to close at N11.997 trillion.

Similarly, in May, the market’s month-on-month performance closed at 9.76 percent as against 8.08 percent gain in April.

Due to the global impact of coronavirus (COVID-19) pandemic on the economy, there has been a halt in physical operations of companies. This has resulted largely in weak inflow of foreign portfolio investments, high uncertainty in the economy, and investors’ apathy in the capital market.

Although the COVID-19 outbreak has forced a slow or halt in the physical operations of some businesses, the market has remained attractive with regard to dividend yield and valuation ratios, according to NSE chief executive, Oscar Onyema. Mr Onyema, who spoke at a virtual stakeholder engagement earlier in the year, added that the All-Share Index outperformed peer exchanges in Africa.

“Supported by recovering oil prices, resumption of economic activities and attractive valuations, we have seen the NSE ASI rally from 20.6 percent in March to -6.1 percent return Year-to-Date,” Mr Onyema said.

Mary Uduk of the Securities and Exchange Commission explained further that the market has continued to operate optimally despite the Covid-19 disruption.

Challenges & Way Out

The adoption of digital technology in capital markets has had its myriads of bottlenecks, chief among which is compliance.

In May, reports said that the UK’s Financial Conduct Authority (FCA) called on firms to “take all reasonable steps to meet the regulatory obligations, which are in place to protect consumers and maintain market integrity”, while leveraging on technology to drive market operations.

The FCA listed the concerns to include issues around recording of phone conversations or provision of regulatory data, which could be challenging in times of remote trading or crisis.

For Amos Babalola, a financial analyst, companies must pay attention to regulatory obligations with their traders’ right to privacy as they leverage on new technologies that can aid compliance.

Mr Babalola argued that in times of remote trading, monitoring market abuse can be challenging as it is quite easier for traders to engage in illicit market practices when working at home, away from physical supervision that comes with the trading floor. a number of traders may also deploy their personal electronic devices in negotiation, unlike on a trading floor where such devices may be banned, or not accepted.

There have been concerns around the legality or otherwise of activities conducted online, for companies and the larger market environment.

In addressing these legal concerns, NSE’s Executive Director of Regulation, Tinuade Awe, said the Exchange recognises the legal and regulatory uncertainties that Nigerian businesses may face regarding convening virtual meetings in the wake of the COVID-19 pandemic.

She added, however, that certain legal regulations give express approval to virtual engagements.

“More so, in light of the fact that the Companies and Allied Matters Act, Cap. C20 LFN 2004 (CAMA) is silent on the issue of virtual meetings. However, CAMA does not expressly prohibit virtual meetings,” she said.

“It is, therefore, expedient that the Articles of Association of a company or its Board, Committee, and Management Charters or Terms of Reference should provide for and authorize virtual meetings.”

For numerous other stakeholders, the concern is around the security of new technologies, especially audio and video conferencing applications, which could be compromised.

A shareholder, Jude Obi, said the regulators must ensure that activities online are kept private and sensitive data guarded, to protect the overall integrity of the market.

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