The Nigerian Stock exchange (NSE) has come a long way in the last 10 years. The NSE was first launched in 1960 as the Lagos Stock exchange, and for the first 39 years of its existence the growth rate was at an abysmal crawl. In 1999, the stock exchange got a technological boost when they switched from open outcry to Automated Trading System (ATS). ATS is a system where dealers trade through a network of computers connected to a server. In open outcry, stocks are executed by traders yelling out orders in the stock exchange pit (Think Eddie Murphy and Dan Ackroyd in Trading places).
This month the NSE made another huge technological leap, when they migrated to NASDAQ OMX X-Stream Trading platform. This is a huge step, and further enhances Nigeria’s goal to become Africa’s financial Capital. With this new multi asset trading platform, the NSE hopes to achieve a market capitalization of $1trillion. The system is also expected to be the fastest trading engine in Africa.
I worked on a trading desk in Nigeria back in 2007. I remember there were clear cases of arbitrage in the market. Brokers made money by calling banks to obtain bond quotes and then immediately reselling those bonds at massive spreads. Those type of opportunities are always present in any emerging market, where pricing information is limited. The fact that most of these gAps are closing, is evidence of Nigerias maturity in the market. With this migration to X-stream the NSE hopes to provide live stock prices which will bolster the available financial information for traders. There is also talks of adding an options and futures market. These steps should increase the players in the Nigerian financial markets and help more companies raise the funds necessary for growth. Of course with new complicated financial products comes the added problem of valuation and accounting shenanigans, but that story is for an entirely different blog entry 🙂 Check back with us in about a year, I am sure we will have a blog entry about how companies are hiding their derivative instrument losses! Financial history always repeats itself, even as the technology…………………………… stays mobile!