Volume of trade is low in the region because investors are sensitive to high fees and cost of shares.
Uganda and Rwanda have overtaken Tanzania as countries with the highest stock trading costs in the region with the Kenyan bourse being the cheapest.
These transaction costs largely comprise brokerage commission, exchange fees, clearing and settlement fees and other regulatory charges.
East African countries run the most expensive stockmarkets on the continent, with a bulk of trading costs related going to brokerage fees.
Study by global financial investment advisory firm RisCura shows that Uganda and Rwanda have overtaken Tanzania as countries with the highest stock trading costs in the region with the Kenyan bourse being the cheapest.
The findings of the study contained in a report titled Bright Africa (2019) shows that in addition to the actual price of a company share, investors in Uganda have to fork out an extra 4.1 per cent of the value of the share as transaction cost.
These transaction costs largely comprise brokerage commission, exchange fees, clearing and settlement fees and other regulatory charges.
In Rwanda, these costs take up about 3.4 per cent of the value of the shares while in Tanzania and Kenya are estimated at 2.7 per cent and 1.4 per cent respectively.
In its 2018 study, RisCura pointed out Dar es Salaam Stock Exchange as the most expensive bourse in the region followed by Uganda Securities Exchange, Rwanda Stock Exchange and Nairobi Securities Exchange.
According to RisCura, stockmarket investors are sensitive to the cost of the shares and would prefer putting money in relatively cheaper markets partly explaining the low trade volumes on East African bourses and the increasing level of illiquidity in these markets.
In Uganda, stockbrokers take the largest share of commission at 3.28 per cent of the value of the transactions, not only within East Africa but in the entire African continent, while South Africa has the lowest brokerage commission at 0.18 per cent.
In Rwanda and Tanzania brokerage commission on equity trading are regulated at 1.5 per cent while in Kenya stockbrokerage commission is limited to Ksh100 ($1) for odd lot transactions up to Ksh3,000 ($30) and 1.8 per cent for odd lot transactions in excess of Ksh3,000 ($30). An odd lot is simply an order amount for a security that is less than the normal unit of trading for that particular asset. “Since investors consider transaction costs in their investment decisions, the markets with high transaction costs also have low liquidity,” according to the report.
Efforts by the EAC capital markets regulators to integrate the respective stockmarkets into a single market to allow seamless trading of shares across the borders have not borne much fruits with Kenya pulling out of the project citing irregularities in the procurement of the software. The software was to link the trading platforms of the NSE, Uganda Securities Exchange, Dar es Salaam Stock Exchange and Rwanda Stock Exchange so that they run as a single market in real time.
