Assessment of the Perceived Benefits & Limitations of the Automated Trading System at the N.s.e – a Survey of Mba Students at the University of Nairobi

Abstract

The concept of automated trading at the stock market is a fairly recent phenomenon at the Nairobi stock exchange, having been introduced only recently in the year 2006.This was just about 2 years after the piloting and gradual introduction of the electronic share depository known as the Central Depository System which was meant to phase out the manual paper share certificates from the market. However, since the introduction of the automated trading system at the NSE, the market has also witnessed several challenges e.g. stockbrokers trading in clients’ shares without their authority, collapse of several stockbrokers, unethical trading practices, etc. This has prompted some investors to question the credibility of the ATS being used at the NSE. It is on the background of these events that this particular research study was conceptualized. The study set out to explore and assess the perceived benefits and limitations brought about by the introduction of the ATS at the NSE. The main objective of the study was to make an assessment of the advantages and possible limitations of the ATS being used at the NSE. The research study was conducted by carrying out a survey on MBA students of the university of Nairobi who represented investors with CDS accounts at the NSE. The target population was 1,700 students but due to time and resource limitations, a sample of 100 students was picked for the study. The study used a questionnaire as the data collection instrument and primary data was gathered using this questionnaire. Out of the targeted 100 respondents, responses were received from all of them, which means that the response rate was 100%. The data collected was then analyzed using the statistical package for the social sciences (SPSS) and Microsoft Excel spreadsheets and presented using descriptive statistics such as frequency distribution tables, charts and graphs. From the results of the study, most of the investors agreed that the introduction of the ATS at the NSE had brought with it several benefits advantages e.g. increased market liquidity, reduction of the time taken to execute a trade, lower trading costs and also making the NSE to be a world class standards stock market, among others. The research results also indicated that the investors felt that the ATS had also brought with it several limitations e.g. difficult auditing of trading transactions, unethical practices, unauthorized trading in clients’ shares, among others. Based on the research findings, this study recommended that apart from proper measures being put in place by the market regulators to prevent the unethical trading practices, the integrity and professionalism of the various market players and intermediaries is of crucial significance. The main limitation of this study was that it mainly collected data from MBA students, most of whom had not been in the stock market for more than five years, hence may not have had the real experience of the old manual trading system to compare. This study suggests that further research be conducted in this area with special focus on the wide spectrum of the general investing public ( both institutional and individual investors ). This could be done by taking samples of investors from each of the licensed stockbrokers and other market intermediaries and assessing their perceptions and views about the automated trading system currently being used at the NSE. In summary, the study concluded that although a majority of the investors were generally satisfied with the introduction of the ATS at the NSE, the critical perceived limitations associated with the system need to be addressed urgently by the relevant market regulators and trading authorities.