David Irungu of Nairobi Stock Exchange (NSE) traces the pace of the change in staffing to the economics of the sluggish performance of bourse, which forced brokerage firms to lay off dealers due to low business.
“Most of the dealers that were their during the open outcry system have gone. We now have new dealers. Some very young, just straight from the university,” said David.
Moreover, with the resurgence of the stock exchange at the beginning of the year, demand for dealers is on the rise again, with stock brokers actively recruiting graduates. The recent trend by commercial banks to either acquire brokerage firms or establish securities departments has also added to the number of dealers.
Stock market dealers or traders buy and sell shares of public listed companies for the clients of the stock broking firms, specializing in either corporate or individual investors.
Fierce competition for the jobs and the rising education level of Kenyans, has seen brokerage firms require a degree as a minimum requirement, most often in business, finance or politics.
There is no university or college that trains stock traders, with most brokerage firms providing in-house training given by experienced traders.
But to be a certified dealer, traders must complete an Automated Trading System (ATS) course offered by the NSE. The two-week course is free, but is only open to member firms of the NSE. Dealers are taken through intensive practical sessions on the technical aspects of the automated system, including how to transact, security features, how to place orders, set alerts and monitor bids.
“They are also trained on surveillance, malpractices and ethics,” says Irungu.
This has become key. A number of brokerage firms have folded or are currently under the Capital Market Authority investigation for malpractices.
“A common problem in the industry is insider trading, where directors of companies or stock brokers privy to privileged information of a company buy or sell the company’s shares based on that information before it reaches the market,” explains Irungu.
Unscrupulous traders can try to manipulate the price of particular share to gain from it, while ideally share prices should be demand driven. Some of these malpractices are punishable by law, and have been responsible for the downfall of mega corporations.
“Honesty, integrity and ability to work under pressure are important values if you are to make it in this profession,” says Irungu Mbuthia, a dealer with Genghis Capital.
Stock trading is a high energy, sensitive and information-based activity. Dealers need to have excellent research skills as well as an ability to see the bigger picture. Good communication skills and aptitude for figures are an added advantage.
“The trading hours, between 9 am to 3 pm, are pretty intense,” says Mbuthia.
Dealers’ analytical skills are often called upon in relating both national and global political-economic happenings to the likely impact on stocks.
Stock broking is a result-oriented industry with clients looking for the highest, and often fastest, return on their investment. Career progression is based more on merit and performance than academic qualifications.
And traders’ earnings can be high. In the US, the average retail stock broker earns around a million shillings a month. In Kenya, dealers earn Sh50,000 on average as a retainer, but can earn up to Sh200,000 on commission.
Dealers begin as trainee traders progressing to become senior dealers overseeing a team of dealers. In more developed markets, dealers specialize in specific industries as they progress, or branch out into consultancy or into the treasury departments in banks.
Before the arrival of the automated system, the Nairobi bourse was a literal market. In the old system, dealers would shout trading orders to the board writers, in the ‘open outcry system’.
The shift from manual trading to the automated system in 2006 ushered in a wave of change including improved confidence in the stock market especially by international investors who could now monitor their stocks in real time, through their brokers. There is also less wastage, in terms of papers used since it is a paperless process.
“Surveillance of stocks is easier and information is accessed in real time,” adds Irungu.
The automated system runs on a wider area network, and is currently only accessible in Nairobi.
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