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Online Trading in the Age of Distributed Ledger Technology (DLT): The Doubts, the Pains, and the Opportunities

The Nigerian financial system has the capital market as an integral part of it. The money market, the insurance market, and pensions are other aspects of the Nigerian financial system, each being regulated by governmental agencies such as the SEC, NAICOM, and PENCOM, where all are tasked by statutes to set their own long-term objectives. In addition, they are to further the course of capital formation by making it easier for surplus and deficit units to exchange money. The exchanges that make up the securities industry or capital market are self-regulatory, which means that they set and enforce rules to direct the professional activities of their members.

But amongst other concerns that have preoccupied stakeholders and now represent the regulators' brief in the future is the need to increase the size of market capitalisation relative to the country's GDP. Experts have argued that the currently low market capitalisation to GDP ratio is because the capital market is not representative of the Nigerian economy. The Market Capitalization to GDP ratio (of the NGX), which stood at 29.7% in December 2007, has declined to 18%, showing that key players in growth sectors in the Nigerian economy do not have their securities listed on the capital market. Taken together, however, the market capitalisation of the three major exchanges, namely FMDQ Group ($45.64bn), NGX($74.14bn) and NASD($1.19bn) amounted as of December 2021 to US$120.9bn less than 50% of the country's US$ 400bn GDP in 2021 (see illustration 2 below).

Illustration 2: 

In economies with more sophisticated capital markets, the situation is different. The ratio of Market capitalisation to GDP in the US is 151% as of June 2022, while the long-term average Market Capitalisation to GDP is 82.55%. The situation in the UK is similar. As of December 2021, Market capitalisation as a percentage of GDP was 106.4%, with an all-time high of 130.8%. The South African case further typifies the argument for a more vibrant capital market. The Johannesburg Stock Exchange (JSE) market capitalisation as a proportion of South Africa's GDP in 2021 was 329.3%. 

Digital transformation is required for Nigeria to deepen its capital market further and increase the variety of instruments available to investors. A digitally inclusive capital market structure would save time and resources and strengthen partnerships among securities exchanges.

In that light, the African Exchanges Linkage Project (AELP), going live on cross-border trading in November 2022, represents a milestone just like MTN's 575m digital public share offer last December. Integrating the African capital markets by facilitating the free movement of investments in the continent through the AELP Link platform. The interconnectivity platform enables the trading on exchange-listed securities across seven participating securities exchanges, namely: Bourse Regionale des Valeurs Mobilieres (BVRM), Bourse de Casablanca (BVC), The Egyptian Exchange (EGX), Johannesburg Stock Exchange (JSE), Nairobi Securities Exchange (NSE), Nigerian Exchange Limited (NGX), and Stock Exchange of Mauritius (SEM)

In the future, the Capital Market is expected to:

• Serve as a major source of funding for most government and companies' capital projects
• The employment of DLT to improve:
  •  - Settlement finality
  • - Traceability
  • - Anonymity at the appropriate points
  • - Low latency
  • - Scalability
  • - Liquidity
  • - Richness of information – metadata
• Build on digital transformation, listings and de-listings, technology, partnerships, and sustainability.

Download the Full PDF Report Here:

Online Trading in the Age of Distributed Ledger Technology (DLT): The Doubts, the Pains, and the Opportunities