Response strategies to challenges posed by electronic trading system at the Nairobi stock exchange: a survey of stock broking firms

Abstract

Kenya is one of the first countries after Mauritius and South Africa in the African continent that have adopted electronic trading system in the stock market. Adoption of digital trading technology posed some challenges to implementation and this study which was a survey sought to investigate response strategies used by Stock Broking firms to counter these challenges. The objective was to establish response strategies used by Stock Brokerage firms in Nairobi to deal with challenges posed by electronic trading system. The population of study comprised of 18 active Stock Broking firms. A mail questionnaire was used in collecting the data. Data was analyzed using descriptive statistics such as percentages and arithmetic mean scores. All Stock Broking firms were found to have adopted electronic trading system. Benefits of the system were found to be increased turnover of business as was reported by 65% of the respondents. This was attributed to the system's capability of enabling Stock Broking firms to handle increased number of clients. Electronic trading has contributed to increased customer satisfaction. 75% of the respondents reported that electronic trading system has helped improve efficiency in the order of execution and also saves time. Implementation challenges found by the study include suspicion by investors and internal system incompatibility to automated trading system. Response strategies used by broking firms include upgrading of internal systems to reduce and manage internal challenges to electronic trading system. Other strategies include staff training program and investor education and installation of screens showing how trade is being conducted at the NSE. The study recommends that Stock Broking firms engage the services of strategy specialist to enable them undertake a thorough" environmental scanning and the eventual formulation, implementation and control of strategy. Further, it is recommended that future studies be carried on policy gaps which impede o..perations of stock broking firms.