Investors bought shares worth Sh4 billion at the Nairobi Securities Exchange (NSE) on the new day-trading platform in 2022, representing 2.13 percent of the total deals made in the year as the invention struggled to spark interest.
Data from the NSE indicates that day trading accounted for 2.13 percent of the year’s total deals of Sh188.58 billion in the first full year of the operation of the financial instrument.
Day trading allows investors to buy and sell the same company shares several times in a single day with the aim of making gains from small price movements, sometimes riding on events that sway share prices.
Day trading was launched on November 22, 2021, to deepen liquidity on the bourse while boosting daily turnover.
Before, investors could only sell a stock a day after purchase, denying them an opportunity to benefit from the price movement on a given day.
Analysts have tied the low fraction to the concentration of institutional investors largely in the market with lower risk appetite to quickly undertake the trades such as pension funds and fund managers.
This also means the financial instrument may have not benefited retail investors who were expected to leverage on the same-day trades except for fewer high-net-worth traders with larger accounts due to transaction costs.
“It is the first full year of day trading and our market activity is usually driven by local and foreign institutions investors who are quite slow to make decisions; also evident by the derivatives market,” said Kenneth Minjire, senior associate for debt and equity at stockbroker AIB-AXYS.
“It also highlights their credit risk, especially the off-shore investors who are looking for investments that would cover their risk before trading.”
Same-day trading is part of innovations aimed at boosting trading and liquidity on the NSE, which is the main entry point for foreigners seeking to invest in East Africa.
However, it fell in a year when the equities market witnessed share depreciation on reduced appetite for emerging markets after a jump in interest rates in developed markets such as the US.
The introduction was also followed by foreign capital flight at the NSE which has also seen their participation drop below 50 percent.
Together with derivatives markets, new products were introduced to the exchange to stimulate the market and unlock new activity.
The derivatives market has, however, been muted, recording a turnover of Sh30.53 million in the three months to September from Sh29.31 million in the quarter that ended June.
The number of deals increased by 26.89 percent to 486, up from 383 over the period.
Day trading activity is expected to continue picking up this year driven by investment and commercial banks that are more agile in decision-making and with a high-risk appetite.
Day trading was recorded at Sh193.31 million in the first two weeks to January 13, four times jump from Sh48.33 million in a similar period in 2022.
“We expect a vibrant market in the second half that will go hand in hand with the day trading activity,” added Mr Minjire.
Day trading became popular on the global scene since the onset of the coronavirus with activity rising dramatically in the first quarter of 2020 compared with 2019 in markets such as India, the US and the UK.
However, it is carried out mainly by experienced traders who have a deep understanding of the market and stocks.
The Capital Markets Authority (CMA) is considering lowering transaction levies of 0.12 percent for day trading to raise the daily market activity and local investor uptake through Public Offers and Listing of Securities draft regulations 2022.
The NSE offered a five percent rebate on the commissions to encourage uptake after a week of going live, levying 0.114 percent compared to normal trades which are levied at 0.12 percent.
The CMA and Central Depository and Settlement Corporation levies of 0.12 percent and 0.08 percent respectively remained unchanged.
In September 2022, the bourse extended the waiver of its fees on equity day trades, allowing investors to take advantage of continued price changes at a reduced cost.