The Chairman of the Nigerian Exchange Group (NGX), Alhaji Umaru Kwairanga, on Wednesday, announced the unveiling of E-Offering Platforms aimed at digitalising of the Nigerian stock market.
In the rapidly evolving financial world, digitalisation is revolutionising how markets operate, enhancing efficiency, accessibility, and transparency.
The digitalisation of the stock market and the advent of e-offering platforms signify a major shift from traditional paper-based processes to a seamless, electronic environment. This transformation is reshaping how investors interact with financial markets and how companies raise capital.
What is Digitalisation of the Stock Market?
Digitalisation of the stock market refers to the process of converting traditional trading and administrative operations into digital formats. This involves leveraging technologies such as electronic trading platforms, blockchain, and artificial intelligence to streamline processes. It encompasses everything from trading stocks, bonds, and other securities to the clearing and settlement of trades.
E-offering platforms, a subset of this broader digitalisation, are online systems that enable companies to issue new securities directly to investors. These platforms facilitate initial public offerings (IPOs), secondary offerings, and private placements, allowing for a more efficient and transparent capital-raising process.
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Key Components of a Digitalised Stock Market
- Electronic Trading Platforms: These platforms enable the buying and selling of securities through digital interfaces, eliminating the need for physical trading floors. Examples include the New York Stock Exchange (NYSE) and NASDAQ.
- Blockchain Technology: Blockchain offers a decentralised ledger system that ensures transparency and security in transactions. It can be used for recording ownership and verifying transactions in real-time.
- Artificial Intelligence (AI) and Machine Learning: These technologies are used for predictive analytics, automated trading strategies, and risk management, providing deeper insights and enhancing decision-making.
- E-Offering Platforms: Websites and applications like Robinhood, E*TRADE, and WeBull allow retail investors to participate in offerings that were previously accessible only to institutional investors.
Benefits of Digitalisation in the Stock Market
- Increased Efficiency: Digitalisation reduces the time and cost associated with traditional trading and administrative processes. Transactions that used to take days can now be completed in seconds.
- Enhanced Accessibility: Digital platforms democratise access to financial markets. Retail investors can easily participate in trading and capital-raising activities from anywhere in the world.
- Improved Transparency: Digital records and blockchain technology enhance the transparency of transactions, making it easier to track ownership and verify trades.
- Greater Liquidity: Electronic trading platforms can handle a higher volume of trades, leading to increased market liquidity and potentially better price discovery.
- Reduced Risk of Errors: Automated systems minimise the risk of human errors in trade execution and record-keeping.
- Enhanced Security: Advanced encryption and blockchain technology ensure the security of transactions and protect against fraud.
Markets that are Already Digitalised
- United States (NYSE and NASDAQ):
The NYSE and NASDAQ have been pioneers in adopting electronic trading systems. The NYSE transitioned to a hybrid model in the early 2000s, integrating electronic trading with its traditional open outcry system. NASDAQ, on the other hand, has been fully electronic since its inception. These changes have led to increased trading volumes, faster execution times, and enhanced market liquidity.
- European Union (Euronext):
Euronext, a pan-European exchange, has embraced digital technologies to unify its markets across different countries. The integration of electronic trading platforms has improved market efficiency and reduced the cost of cross-border transactions. Euronext also launched Optiq, a high-performance trading platform, to enhance the speed and reliability of its services.
- Asia (Hong Kong Stock Exchange and Tokyo Stock Exchange):
The Hong Kong Stock Exchange (HKEX) and the Tokyo Stock Exchange (TSE) have also made significant strides in digitalising their operations. HKEX introduced the Orion Trading Platform, which significantly improved the speed and capacity of trading. TSE’s arrowhead system, an electronic trading platform, reduced the latency of order processing to milliseconds, boosting market efficiency.
- Africa (Johannesburg Stock Exchange):
The Johannesburg Stock Exchange (JSE) is one of the most advanced exchanges in Africa, having fully digitalised its trading, clearing, and settlement processes. The introduction of the Millennium Exchange trading platform has increased the speed and reliability of transactions, attracting more international investors.
The Nigerian Shift (Nigerian Exchange Group)
The NGX has also embarked on a proactive initiative to facilitate the raising of capital through rights issues and public offerings. This move aims to support ongoing efforts in the banking sector and is complemented by the impending launch of an e-offering platform by the bourse.
NGX chairman, Kwairanga, emphasised the group’s strategic direction as a publicly traded for-profit entity, noting that the e-offering platform is currently pending regulatory approval. This digital platform is set to enhance accessibility and efficiency for all stakeholders involved in capital-raising activities.
The Director-General of the Securities and Exchange Commission (SEC), Dr Emomotimi Agama, expressed appreciation for the NGX’s forward-thinking approach in enhancing the country’s capital market.
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Speaking to Arbiterz on Thursday, Agama said, “By leveraging technology, we can attract the younger generation of investors, enhance regulatory oversight and create a world-class market. This digitisation will play a crucial role in setting a new standard for capital raising in Nigeria.”
“This digital evolution is envisaged to redefine the landscape of capital raising in Nigeria, setting a precedent for excellence and enabling the capital market to actively contribute towards the realisation of the Bola Tinubu administration’s ambitious goal of a US$1 trillion economy,” Agama added.
Also speaking on the e-offering platform on Thursday, Temi Popoola, the MD/CEO of NGX, told Arbiterz that the digitalisation of the Nigerian stock market will attract the younger generation to the market and enhance regulatory oversight.
“By leveraging technology, we can attract the younger generation of investors, enhance regulatory oversight and create a world-class market. This digitalisation will play a crucial role in setting a new standard for capital raising in Nigeria,” Popoola told Arbiterz.
Popoola noted that the platform signifies a crucial milestone in the market’s evolution. “Supported by regulators and stakeholders, this digital platform provides an end-to-end digitised market infrastructure for the distribution of financial products such as public offers and rights issues,” he stressed.
The NGX MD/CEO assured investors that the platform encompasses robust payment systems, stringent Know Your Customer protocols, and effective fraud and risk management measures to uphold standard capital market intermediation practices without compromise.
A prominent stockbroker, Mr Charles Fakrogha, who also spoke to our correspondent on Thursday, emphasised the importance of digitalising the market to enhance market transactions.
He commended the Securities and Exchange Commission (SEC) for spearheading this significant development.
“To ensure the effective operation of the digital platform, it is crucial to provide comprehensive training for stockbrokers, compliance officers, and support staff,” Fakrogha added.
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He acknowledged the need to adjust his systems to align with the new platform. He highlighted the potential for seamless operations, while also recognising that some individuals may still prefer traditional paper-based interactions.
“Stockbrokers are adept at catering to a diverse clientele and are prepared to adapt to varying preferences,” he noted.
“By transitioning to a digital platform, the public offering process is expected to become more efficient and transparent. The numerous benefits of this initiative, such as enhanced transparency, operational efficiency, and streamlined record-keeping, promise to revolutionise the market landscape,” Fakrogha stressed.
Challenges in Digitalising the Stock Market
- Cybersecurity Risks: As markets become more digital, they become more susceptible to cyber-attacks. Ensuring robust cybersecurity measures is crucial to protect sensitive financial data.
- Regulatory Compliance: Digitized markets must adhere to strict regulatory standards to ensure fair and transparent trading practices. This can be challenging as regulations evolve.
- Infrastructure Costs: Developing and maintaining sophisticated digital platforms require significant investment. Smaller exchanges might struggle with the financial burden of digitalisation.
- Technological Integration: Integrating new technologies with existing systems can be complex and may require significant time and resources.
The Future of Stock Market Digitalisation
The future of the stock market lies in further leveraging technology to enhance efficiency, transparency, and accessibility. Here are some trends to watch:
- Blockchain Integration: As blockchain technology matures, its integration into stock markets could revolutionise how transactions are recorded and verified, potentially leading to the development of fully decentralised exchanges.
- Artificial Intelligence: AI will play a greater role in trading strategies, risk management, and regulatory compliance. Machine learning algorithms can provide deeper market insights and predictive analytics.
- Tokenisation of Assets: Tokenisation involves converting physical assets into digital tokens that can be traded on blockchain platforms. This could open up new opportunities for investing in traditionally illiquid assets like real estate and art.
- Increased Retail Participation: Digital platforms will continue to democratise access to financial markets, enabling more retail investors to participate in trading and capital-raising activities.
- Regulatory Evolution: As digitalisation progresses, regulators will need to adapt their frameworks to address the unique challenges posed by digital markets, ensuring they remain fair and transparent.
The digitalisation of the stock market and the rise of e-offering platforms represent a transformative shift in the financial landscape. These innovations bring numerous benefits, including increased efficiency, enhanced accessibility, and improved transparency.
While challenges remain, the experiences of markets that have already embraced digitalisation demonstrate the potential for significant positive impact.
As technology continues to evolve, the future of the stock market looks set to become even more dynamic, inclusive, and efficient.
The proactive initiatives by entities like the Nigerian Exchange Group (NGX), particularly in light of critical financial developments such as Nigeria’s bank recapitalisation, highlight the ongoing evolution and the importance of staying ahead in the digital transformation journey.
With the support of regulatory bodies and the adoption of cutting-edge technologies, the global financial ecosystem is poised for a new era of growth and innovation.
Kayode Ogunwale also contributed to this report.
