FIX Technology: Three Years on the Nigerian Capital Markets

LAGOS (Capital Markets in Africa) – Any analysis of Frontier markets will, inevitably, underline the role of technology and best-in-class operational processes and establish them as key drivers to moving a market from “frontier” to an “emerging markets” classification. Enabling technology and transparent efficient processes are, therefore, essential ingredients for these markets to achieve their full potential; serving both a national need for developmental capital and wealth creation, as well as an international need for portfolio diversification and higher returns. Three years on from defining a roadmap for Technology as an enabler in the Nigerian Capital Markets ecosystem, a lot has been accomplished within in the Nigerian Capital Markets and Banking sectors. The Financial Information eXchange (FIX) protocol has become synonymous with Stock Exchanges, Brokers, Asset Managers, Investment Banks and Retail investors.

When the journey started few had the belief that the dream would turn into reality. Nigeria, now ranks, amongst leading financial markets in the world where Financial Information Exchange Protocol (FIX) has become the standard for pre-trade and trade communication messaging. Brokerage institutions in Nigeria are now happily receiving (Local & Global) orders, and sending trades (electronically) using the FIX protocol.

The Debut and the Aftermath
After two years of development and market readiness, the Trading technology (Nasdaq OMX with FIX Protocol) was launched in the capital markets arena. The next step led the Nigerian Stock Exchange (NSE) to seek engagement with the brokerage community to ensure full

compliance with the FIX Protocol. So started the scramble for new trading platforms. The NSE had factored this in as part of the overall technology transformation strategy and as such the uptake of the protocol as a de facto standard led to waves of implementation by Broker firms.

In an interview with the Head of Transformation at the Nigerian Stock Exchange Mr. Olumide Lala, he confirmed that the journey to reach the final FIX destination was perceived back in 2008 when he had been educating the Capital Market players in Nigeria about the benefits of FIX protocol. By the time the Stock Exchange went live with FIX; the top ten brokerage institutions were ready to integrate their various trading applications to the Nasdaq OMX Matching engine.

Once the technology infrastructure had been laid, it was only a question of on-boarding and certification. This took less than a month for most of the brokers to complete and start trading and receiving Market data via the FIX protocol. To date, over 30 brokerage institutions now trade using the protocol. In addition, retail investors can also trade via their mobile apps and applications in real time. The following Case Study highlights the impact of FIX on Trading and Banking systems.

Case study: Top Brokerage institutions and the benefits of FIX
An extensive interview with the Head of Trading of a Major brokerage company in Nigeria reveals the true benefit of the protocol: “The use of FIX has led to tremendous growth across our trading desks (from Lagos to London to Cape town.) We have seen a tremendous increase in order flows and revenue, which we can attribute to the FIX protocol. Chief among the benefits FIX has brought to our firm includes:

Economies of scale: New products have been introduced into their framework (Care Orders; Semi-care orders and Direct Market Access orders);

Expanded trading possibilities: Increase in number of institutional investors and retail investors and hence, increase in global trading possibilities;

Indirect Network effects: We now receive orders across the globe from our institutional and retail investors. Prior to the introduction of FIX, we had to rely on Voice messaging and emails.

There is no doubt that FIX is seen as an enabler to business and technology needs and there are future plans for roadshows to encourage more clients to connect with the FIX protocol. There is every confidence that FIX will open up new business possibilities.

“Being among the first to offer an innovative solution with great potential of development in the field of pre-trade securities will help us win new customers. We count on a return of investment within approximately two years.

“In short, thanks to the NSE X-Gen Matching platform and FIX Protocol, straight-through-processing has become a reality for us and our clients.”

The next step
The considerable benefits of the Nasdaq OMX FIX platform to the Nigerian Stock Exchange in particular and the Nigerian Capital Markets, in general, can be recognized on a number of fronts. The FIX protocol increasingly provides the level playing field for its many market participants while encouraging exchange market differentiation across more value added service areas such as STP, latency, trading platforms and trading strategies and increased market data offerings.

FIX has furthermore been a key enabler for the Stock Exchange to take advantage of economies of scale and provide broader access as well as generate the additional revenues the business requires. The next series of projects revolving round FIX protocol includes Fixed Income; Derivatives, ETDs and commodities.

Moving on to new frontiers in Africa with FIX
Frontier capital markets that are savvier in the selection, implementation and exploitation of trading technologies, and which underpin these with robust business processes, will not only achieve improved participation and liquidity in their markets but will also create a basis for market growth. The NSE plans to take the success story of FIX to other markets in Africa, notably, the West African Capital Markets Integration Council (WACMIC).

WACMIC was established to harmonize a regulatory environment for the issuance and trading of securities across the West-African sub-region. With the advent of FIX, the future is looking bright for inter-regional and cross-border dealing across the African continent.

In conclusion, astute investors (Retail and Institutional) cannot afford to ignore the critical wave of emerging frontier markets in their proprietary and client portfolios. Nigeria, for example, is the largest African economy, and by 2020 has been predicted to be one of the N11 economies in the world. It continues to grow at an enviable rate of over 6%, annually, in a world of struggling economies. Nigeria is a country with over 170 million people, of which 89 million are of working age. And we are keen believers in technology playing a key enabling role to boost the Capital Market. FIX will have a key role to play in increasing flow of liquidity and bringing new entrants into the market.

Given the current environment of FX instability, currency depression, and a lull in commodities trading there has never been a better time for the emergence of technology robustness in frontier markets. Investors locally, on the continent and globally, can remain confident that as the growth cycle rebounds and the expansion in Retail Banking continue in Africa the technology to drive that growth and expansion provided by the FIX protocol will be well and truly embedded in the Capital Markets and Banking ecosystems.

This article features in the October Edition of INTO AFRICA Magazine, a special focus on the Banking Sector in Africa, with an overview of the current trends and opportunities in the Sector.

Contributor’s profile
Mark Byron is an Investment Director and co-founder of Barton Heyman Limited. Mark has undertaken several implementations of the FIX messaging protocol and Electronic Trading applications for Exchanges and Brokers. Prior to Barton Heyman, Mark worked at PLUS Markets Group and Fidelity Investments Ltd. He has an MBA from the University of Chicago Booth Graduate School of Business, holds the Investment Management Certificate (IMC) and is a Member of the Society of Investment Professionals. Mark is currently writing a book on Investing in Africa called Africa Arrives!