The Nairobi Securities Exchange (NSE) now plans to introduce a new trading platform by December 31, 2024 that will allow retail investors to buy a percentage or share of shares instead of paying the full price.
Under the new system, known as fractional investment, an investor will be allowed to choose multiple shares of listed companies instead of putting all his money into one company’s shares to buy a certain number of shares in full.
Currently, a person must own a full share, with the minimum number of shares to buy for any exchange in the market being 100 shares — a requirement that the NSE says has been prohibitive to the growth of the market because it limits access to stocks, especially those with high nominal prices.
For example, under the current system, an investor needs a minimum of Sh35,400 to buy high-priced shares in BAT Kenya. This may change under the fractional trading system, where an investor can only buy a fraction of BAT Kenya shares.
“There is an entity that has already taken several steps along the way. We have had contact with the Capital Markets Authority and they have started the pilot side of it and now the conversation is about when to start,” Frank Moeti, CEO of the Nippon Exchange, told Daily business.
“Fractional trading would be a game changer. There is a lot of liquidity in our market that cannot be accessed by many outlets because our market is structured around issues like minimum contract and ticket size.”
The NSE first hinted at introducing fractional trading in December 2022. However, the project failed to take off as the exchange refocused its attention on day trading.
“We have desks where stocks are held closely and while there is a lot of demand for them, there is no supply. We want to enable investors who don’t necessarily have big tickets to come to the market. If you have Sh100, you should be able to come to the market and that is why we enable fractional trading among other pooling type trading strategies. That has worked very well in India and South Africa,” Moeti said.
NSE will draw comparisons with India and South Africa as it moves to fractional trading.
Buying fractional shares can be beneficial in several ways, including affordability and diversification. For example, in terms of affordability, you don’t have to wait to accumulate large sums of money to buy the amount of shares you want. You can start investing in many fractional shares with the small amount you have available.
Fractional investing also has the advantage of diversification, as you can choose many stocks to invest in with the small amount of cash you have.
Fractional shares may not provide an immediate return to the individual investor because of their small size, but investing over months or years may allow the stock purchase to build up gradually, perhaps in the form of several whole shares in several stocks.