Since the capital market meltdown of 2008, the Nigerian Stock Exchange, NSE, has come up with various initiatives in terms of technological development to advance the market in keeping with international best standard. In this interview,Mr. Charles Fakrogha, Stockbroker/Chief Relationship Officer with Foresight Securities & Investment Limited, highlighted some of such initiatives and how they have helped in advancing the market. Excerpts:
By Nkiruka Nnorom
WHAT role has technology played since the last stock market meltdown in 2008 in terms of enhancing transaction and promoting transparency in the market?
In my own view, I think technology has done a lot in terms of market development from our last experience. Technology has done quite a lot in terms of transparency speaking from an operator’s perspective.
All the stockbroking firms have enhanced their Information Technology, IT capability; most firms now trade remote. Most firms now have what is called Order Management System, OMS, where clients can put in their orders from any part of the world and those orders will get to the trading engine of the stock exchange, of course, validated by the trader before they get to the trading engine.
Technology has also assisted the stockbrokers to get to their clients in terms of smart trading, where a broker can give a code to the customers and they use their smart phone to trade. When we say trade, it means they can put in their order, but before those trading orders will get to the trading engine, the stockbroker who gave the client the access must have validated the order.
So, it is also making business easy for the capital market. Operators can now reach as many of their clients as possible unlike before when they have to manually put in the order. So, technology has done a lot in terms of enhancing the market.
At the same time, it also has a flip side. Technology has also posed problem in terms of hacking, in terms of cyber-crime, but the measures put in place by the information technology department of the stock exchange and constant training and re-training of operators, to ensure that their system is fire proof, has helped in plugging the leakages.
You have painted quite a good picture of what technology has helped the market to achieve, but you find out that infractions among stockbrokers still go on despite all these. Is it that technology deployed by the exchange to check infractions is not effective?
Infraction has nothing to do with technology; it is integrity. However, technology has a role to play. There is a system at the Central Securities Clearing System, CSCS, initiated by the stock exchange. If I buy or sell for a client, the client gets automatic alert. That is what is called Trade Alert. If I as a stockbroker, I buy or sell for a client, he/she receives trade alert on his/her phone. So, if the client sees a trade on his portfolio that a broker has sold and did not give the mandate. Of course, it is obviously, an unauthorized sale. It is left for the client to report the transaction to the appropriate authorities. If the client did not do anything, of course, the stock exchange will not know. So, when a client is opening their trading account, they must insist that they will like to have a trade alert. The trade alert is now made compulsory.
As soon as a client fills the form and you send it to the CSCS, automatically, the investor will be on trade alert. It is a very good innovation and it has been on for a long time.
So, when the unauthorized sale takes place, the investors can make a report and where the broker cannot give reasonable explanation, the investor can take it up at the level of the Nigerian Stock Exchange and the problem will be resolved.
As for me, I think technology has played a major role in terms of checking unauthorized sale, unlike in the past when a broker will sell and the client will not get any notice until one or two years after.
How has technology benefited your firm as brokerage house and what measures have you put in place to keep up with the current trend?
I must give credit to the management of Foresight Securities and Investment Limited. They have shown leadership in terms of the technology they have deployed in our operation.
At the same time, as a responsible dealing member firm, we have met the stock exchange’s Minimum Operating Standard in terms of the technology because the stock exchange gave us minimum standard that all stockbroking firms must meet to remain in the market. You must have your Order Management System, all your operations must be on cloud.
We also have what is called business continuity programme such that if there is problem in our office, our server is hosted outside the office, so we can move in with our laptop and operate from there.
So, it will not take so much time for us to come back to operation if there is major crisis like fire disaster, flooding or terrorist attack. All these are minimum technology that any dealing member firm in the market is expected to meet, which Foresight has met and we have seen the benefits.
In terms of reaching our clients, there are some clients today that we don’t need to see physically. They send their mandate from anywhere in the world and we execute for them.
Recently, the CSCS and the stock exchange came up with direct cash settlement. With direct cash settlement, if I sell shares for a client, all the proceeds will not come to my account. It is only my commission that comes to me while the proceed goes to the client. For us, that is a major breakthrough in terms of technology.
This has come to also eliminate market infraction and this is major breakthrough on how technology has assisted to bring sanity in the capital market. It will interest you to know that Foresight is one of the stockbroking firms at the forefront of implementing the stock exchange’s direct cash settlement initiative.