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NCM 2020: Technology and the Nigerian Capital Market

Capital Market	1245 VIEWS
Capital Market
1245 VIEWS

Monday, March 01, 2021 /05:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics

Technology & The Capital Market

Technology Adoption

The adoption of new technology is not a fad but the tap root of the new asset trading outlook of the future. Investors are going to be less concerned with having face time with their equity and fixed income brokers as they would be concerned with the simmering impact of economic and sectoral business changes on corporate bottom lines or instrument yields. The information they desire must be timely, qualitative, and reliable. CMOs that cannot provide this service delivery quality, leveraging technology and data will soon find their doors shut, permanently. Artificial Intelligence (AI) and Machine Learning (ML) are the new cogs of the spoke of asset brokerage services.

Going forward technology will constitute a bigger role in resolving clients credit requests and investment preferences places trading decisions in the hands of the customer rather than the so-called specialist. The specialist will still have roles to play but the power of near monopoly over the relevant data needed to make intelligent decisions will gradually disappear.

Technology will light a fire under the bed of CMO complacency and require traders and investment analysts to justify their incomes and ensure greater fidelity in their advisory role.

Summary of the Online Trading Report

In the 2020 online trading report the authors noted that, "To be sure, local Nigerian financial markets are steadily rising to match global standards. Fintech companies are putting pressure on the brick-and-mortar paradigms of classic trading platforms and raising the performance bar for younger investors insisting on a different consumer journey from their forbears. Indeed, the new user of financial products is fixated with speed, governance, responsiveness, and accuracy. Capital Market Operators (CMOs) that cannot fit into the revised framework of client expectations have one choice, to fold up".

The prognosis might have seemed brutal, but it was factual and relevant. The realities of the new investor environment create a buying and selling protocol that is different from the past. The new market perspective involves the application of technology to a new type of investor, a new expectation of markets and a new set of regulatory requirements. The report further pointed out that, "The evolving capital market environment is gruellingly competitive and crushingly innovative, the time for genteel paper-pushing has ended and operating firms that do not rethink, reimagine and restrategize their businesses could kiss such businesses farewell as digital innovation becomes an ever more powerful force for change".

In the report it was explained that "The outbreak of the coronavirus pandemic in late 2019 has made the case for remote business interface compelling. The report notes that the fixed income securities market is the largest and possibly the most attractive segment of financial trades. With the government increasing activity in the treasury bill and bonds market to cope with the challenges of widening budget gaps, the market for public treasury instruments has grown phenomenally over the last decade 2010-2020. While the Nigerian Stock Exchange (NSE) market capitalization rose from N11.48trn in 2014 to N12.96trn in 2019, reflecting a six-year growth rate of +12.89%, the bond market saw growth from N104trn in 2014 to N232.68trn in 2019, showing a much faster-paced six-year growth rate of +123.73%".

"Despite the faster growth in the fixed income market and the relatively larger size of government treasury trades, the digital market still favours equities. The report discovered that 72.90% of online trades are equity transactions, 14.18% mutual funds transactions (mainly equity), fixed income 5.29%, forex 2.19%, commodities 0.90% and others 3.35%. Investors appear be feel easier handling traditional equity businesses online than any other asset class. The limited nature of online trades means that the online market of asset trading in Nigeria is thin and narrow, thereby representing an opportunity".

"If traders educate their clients and show them how to make decent returns on trading different asset classes, the volume of traded online business would increase exponentially, and investor portfolio diversification would improve risk/return ratios. The online financial asset trading business appears constrained by a lack of strategic effort at getting investors to migrate to digital mobile trading platforms. The problem appears to be a lack of CMO-friendliness with digital technology and constraining 'muscle memory' that compel CMOs to revert to the comfortable and familiar. Fintech companies are, however, shaking things up".

"COVID-19 may have wobbled CMO perceptions and their operating preferences as remote interaction increasingly becomes the new normal, with clients increasingly expressing a preference for transaction journeys that reduce a human interface. Gen-Zers would want the customer experience to be plugged into a mobile digital journey like their daily consumer retail transactions. To improve digital online trading, CMOs will need to rethink their service-delivery buckets and drive more business to digital platforms".

The data research behind the report peeled the onion skins from market perception to show the following statistical results:

On reviewing the outcome of the 2020 survey that received 785 responses, the top five fastest online platforms were:

Meritrade
Codros TradeButton
Investment-One EasyTrade
MyTradeBook, and
InvestNow

These platforms, according to the survey, provide investors with the fastest trading journeys but most of the experience relates to equity trades. What informs the choice of online trading platforms? The survey result suggests that users of online platforms made choices based on the following considerations:

Easy trade execution (44.44%)
Quality of Research & Reports (11.89%)
Asset Recommendations (11.50%)
Referrals by friends (11.24%)
Corporate self-promotion (5.94%)
Market data search (1.42%)
Others (5.04%)

The consumer experience journey has shown that financial sector clients continue to discriminate amongst online service providers for the following key reasons:

Market/Company Analysis and Reports (42.71%)
Platform Trading Tools (32.00%)
Diversity of Assets Tradeable (11.61%)
Low Commissions (8.90%)
Others (4.77%)

S0 where do online clients desire to see improvement in service delivery experience? The research survey suggests that the most significant areas of online service improvement required by clients are in the following areas:

Research Reports (26.14%)
Other Tradeable Assets Apart From Equities (23.92%)
Lower Service Commissions (20.39%)
Better Trading Tools (14.51%)
Lower Initial Deposits (7.06%)
Others (7.97%)

The survey covers other areas of importance to retail and wholesale customers, building a body of information of strategic importance to CMOs who would need to Rethink, Reimagine and Restructure platform operations in a way that feeds into a product and process value chain that fully recognizes the needs and wants of younger demography of investors.

The report for 2021 intends to upgrade its 2020 counterpart to dive deeper into the relative digital performances of CMOs. It would also review the buy-in of generation Y and Z investors and dissect their user experiences, interfaces, and expectations.

New Trends

With a younger profile of investors dependent on internet access and information, investor expectation has shifted to and amongst a younger demography. Investors among the new generation of Nigerians are quick to make global comparisons of returns and risks on the fly at the flick of a button.

This will mean that CMOs will have to scaleup their service point responses and improve their communication with customers using cutting-edge Artificial Intelligence (AI) software. In addition, the broad and speedy access of clients to market information across global jurisdictions suggests that more investors would want to trade assets across countries.

The latter point might prove tricky as the SEC has not yet provided a framework within which Nigerians resident in Nigeria can trade (buy or sell) equity in companies listed on foreign trading floors such as the New York Stock Exchange (NYSE), Chicago Board of Exchange (CBOE), NASDQ, or the London Stock Exchange (LSE). With investors wanting to take advantage of global opportunities CMOs and regulators will come under increasing pressure in 2021 to allow local Nigerian clients trade in foreign equities. The recent challenges faced by fintech companies like Chaka with the SEC underscores the conflicts and opportunities in cross-jurisdictional trading.

Do feel free to share your opinions/observations and feedback with us vide content@proshareng.com and/or research@proshareng.com

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