This archive report was first published on 28 October 2019.
On October 28, 2019, the Nairobi Securities Exchange (NSE) introduced a new trading platform that has raised concerns about the risk of 'ghost' shares trading.
The system, which separates trading and post-trade activities, has removed pre-validation checks, allowing customers to sell shares they do not have.
According to Muathi Kilonzo, director of Frontier Equity Sales, this has exposed brokers to penalties for executing naked shorts, which are trades made without owning the underlying shares.
‘It is an issue for brokers because the penalties for executing a naked short are very much skewed towards the broker and all he's doing is executing an instruction in good faith. We do not know how many shares are in a custodial client account,' Kilonzo said.
The NSE has stated that the new system is designed to support market activity and short selling, but has acknowledged that pre-validation is still supported through the Broker Back Office (BBO) system for non-custodial trades.
‘We are working closely with the BBO vendor (Chella Software) to have this deployed…We confirm that Delivery versus payment of all trades will continue to be achieved in line with global best practice,' the bourse said.
