Mr Timothy Mbugua of Symbiotic

October 22, 2008: When he heard the news that the Capital Markets Authority was moving to the rescue of another stockbroker last week, Mr Timothy Mbugua was a disappointed man.

“I  saw immediately that it was a case of the owners spreading themselves too thin, and possibly mismanaging their clients’ accounts. The sad thing is it could all have been averted,” said the chief executive of Symbiotic, a local software and design house.

As CMA, the capital markets regulator, moved to save Discount Securities Limited, the country’s growing investor base was once again faced with the unwelcome truth that many investors do not know what goes on at their agents’ offices, and also their wealth held in shares.

In this instance, the CMA intervened following what it described as “cash flow” problems at the firm, which has thousands of investors around the country.

Just last year, Francis Thuo & Partners went under, and then early this year, Nyaga Stockbrokers ran into trouble, with the company’s directors expected in court over matters related to its collapse.

“The CMA and Nairobi Stock Exchange shall be intervening with a view to restructuring Discount Securities, strengthening its corporate governance structures to ensure its business continuity in the interest of capital markets and the investing public,” said CMA chairman, Chege Waruingi.

To Mr Mbugua, the issues facing Discount should present an opportunity for the industry, which handles the investments of over one million savers, to embrace technology.

“They have chosen a self-regulatory format. Brokers need to adopt technology as a more transparent method of letting their clients to know what is going on with their investments,” he said.

To achieve that goal, Mr Mbugua’s company is offering one of the first locally made software solutions for the stock broker industry, named Esplanade.
The solution enables brokers and investors to monitor and approve every transaction made in their CDSC account.

All Kenyans who invest in the stock exchange must have this account, which investors use to keep their wealth under the eyes of a broker.
Esplanade is already in use by  Standard Investment Bank.

Symbiotic is now actively courting other players in the market to acquire the software solution, which Mr Mbugua says is tailor-made to the Kenyan stock brokerage firm.

The solution costs Sh5 million to implement. Other offerings in the international market could cost up to Sh100 million to install.

the CMA chairman, Prof Chege Waruingi

Esplanade would see stockbrokers extending more control to their clients over their accounts.  Users can log onto the system to monitor the activity on their CDSC account and must personally approve every transaction made.

“This gives them more control and knowledge over what stock-brokers are doing with their investments, limiting any illicit buying and selling,” said Mr Mbugua. Symbiotic’s offering allows users to interact with their CDSC accounts using the Internet, their phones and e-mail.

Esplanade will give users a heads up every time an activity is logged by the system, cutting down on illicit trading by stock brokers.

The system can also allow users to instruct their brokers to act on demand. For instance, if a user wants to sell when a stock price reaches a certain level, the software will alert the investor by SMS or e-mail and will ask for authorisation to inform the broker to trade, or let the user trade themselves.

Online trading

Symbiotic hopes to cash in on a global trend that had seen more investors become more Internet-savvy.

And as their clients become more comfortable with online trading, around the world, more stockbrokers are focusing on selling new services and benefiting from a better understanding of their investors needs from use of technology.

Industry body, the Securities Industry Association (SIA) anticipates that over half of retail stock trading is now done online worldwide, with some countries such as America, leading with over 70 per cent of trades online.

In addition, the SIA says stock-brokers will have to become more technology-savvy as more money is spent on Internet trading technologies.

The body estimates that budgets for developing online trading businesses will increase by 12 times in the next six years.

As more companies start to put on their trading hats, stock brokers are also falling under more pressure to embrace technology to offer more specialised services.

Radar screen

Locally, banks have recently appeared on trader’s radar screens as new brokers.  Equity Bank is targeting placing the stock market within reach of its over two million account holders by offering a brokerage service, and several other banks are joining the band-wagon.

“What will set the brokers apart is their ability to ensure their value proposition is the best. Giving account holders the control to monitor every little transaction could be the edge brokers could exploit,” said Mr Mbugua.