Investing in financial infrastructure: what do we need to do this decade to ensure optimal outcomes for the next?

By: Geoffrey O. Odundo, Chief Executive Officer, Nairobi Securities Exchange Oct 2019

A safe and efficient financial infrastructure promotes financial stability and is imperative for the successful operation of modern integrated financial markets. Technology is transforming industries globally with Fintech taking centre-stage in changing the financial landscape in the capital markets industry. It is imperative for financial markets in Africa to invest in technology.

Daily, the line between finance and technology continues to be blurred and traditional business models risk being lost to Fintech-enabled prototypes. As one of notable lessons from the 2019 World Federation of Exchanges Annual General Meeting, technology remains a core aspect of our business. However, technology has seen tremendous growth and development raising uncertainties on the future of capital markets. Despite the uncertainty that comes with the rise of new technologies, they present the much awaited opportunity for capital markets to leapfrog into a new digital age of growth anchored on redefined business models that support enhanced efficiencies, unlock liquidity and boost transparency.

Leveraging Mobile Technology to Enhance Access 

Globally, over 5.13 billion people have access to mobile devices representing slightly over 66.5% out of which 35.13% own smartphone devices. The Capital Market need to leverage on mobile-enabled technologies to increase access to the Capital Market. This will play a significant role in unlocking untapped pools of investment capital and support diversification of the investor base in various markets.

The launch of M-Akiba, the world’s first mobile traded government infrastructure bond, enabled the Nairobi Securities Exchange (NSE) to register over 560,000 new bond investors across a wide spectrum of investors in the country.

Scaling through Partnerships

Due to the ever changing nature of technological innovations in core trading, settlement and related services, investments in capital markets technology are highly expensive. Capital markets players will need to seek strategic partnerships to share technological resources, mutually benefit from expert skills and diversify risks.

Partnership with capital markets technology providers will allow capital markets players to access premium services at cost and ease their ability to focus on their core business of mobilising capital.

In implementing the M-Akiba bond, the NSE partnered with Mobile Network Operators, technology providers, Liquidity Providers, Clearing and Settlement Providers among others.

Enhancing Investor Confidence through bolstering Cyber Security

In this era of global digital flows, companies must take all possible steps to build robust cyber-security capabilities.

Confidence to manage existing and potential cyber threats in the wake of a growing and evolving cyber threat landscape, and increasing technology-enabled capital markets operations will be key in improving investor confidence. Capital market players will need to invest heavily in developing the knowledge and skills to raise awareness of threats and associated risks likely to affect their operations, and impact on their ability and reputation among investors.

Flexibility in the Policy Making Process

The policy making process in the capital markets ecosystem is slower than the rate of technological innovation. For capital markets to outgrow technological innovation and adopt a proactive strategy to technology rather than a reactive strategy, the policy making process has to be flexible enough to accommodate the fast development of regulatory frameworks that support the adoption of new technologies.

I believe a strong focus on mobile-focused technologies scaled through strategic partnerships guided by a strong focus on cyber security will enable capital markets to thrive in this decade and set a good foundation for the next.