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Look, don’t Touch: Real time Prices without Trading is Useless

This week on Street Talking in NEXT, I describe why I am not very impressed by the Nigerian Stock Exchange’s latest announcement to deliver real time prices to investors. I argue that without investor access to real-time trading, it may be no more than half-measures-as-good-as-no-measure. I conclude by urging the Exchange to allow online discount brokers for self-directed trading if it wants the benefits of access to real-time prices to trickle down to investors.

Maxims are deceitful. A popular saying may triumph on the basis of the myth it conjures but fail woefully when put to empirical test. These compressed nuggets have a cunning way of sweeping debate about their validity under the rug. Lately, I have had a quarrel with an aphorism which beguiles by conflating non-causal conditional sequence with necessarily concurrent phenomena. I am talking about ‘knowledge is power’. At face value, it holds a lot of appeal. In truth, it is incorrect. Knowledge is a pathway to power. It might even be a precondition for power. But it is not power. Giving the people knowledge but denying them power is the worst infliction of misery. Karl Marx exposed the incapacity of this view long ago when he wrote that ‘until now philosophers have tried to understand the world. It is time to change it.’ Knowledge for its sake is worthless if the savants’ hands are bound up. It is tools for fools. No political agitator ever rallied the masses with the flat-footed war cry ‘knowledge to the people’. The poetic ‘Power to the People!’ is what changes the world. It is quite possible to have knowledge without power. Knowledge sans power is not a contradiction.

Last week’s announcement by the Nigerian Stock Exchange (NSE) that it had signed an agreement with Thomson Reuters, the market information leader, to deliver real-time trading data falls squarely into the category of sanitized revolutions. It gives investors enough information to whet their appetites to trade better and more effectively but withholds from them the instruments they need to execute those trades when they see mispricing opportunities. According to Busisa Jiya, Thomson Reuters’ Manager for Africa, investors will now be able to ‘make more effective trading decisions using real-time data on equities traded on the Nigerian Stock Exchange.’ In theory, that should happen. In reality, it won’t.

How can investors be expected to benefit from the improved access to prices if they must still join the long queue in their broker’s order book to get their trades executed? Trade execution is the last mile and the most crucial at that too. It is similar to flying an F-15 fighter jet into a city, then riding donkey-back to your final destination a hundred miles away. Two words: self defeating.

There may be some psychic satisfaction in watching blinking numbers on a computer screen displaying bid-ask spreads. For those investors who plan to subscribe to the service, that is all that it will ever be, visual entertainment. At least, unless the Securities & Exchange Commission and NSE allow independent traders to place their own orders through a secure online trading platform or discount brokers that will not discriminate between them and dealing members.

‘Tee Capital’, a commentator, on the NEXT report of the signing, expressed the frustration of many. His comments are so right on target that they deserve a verbatim quote: ‘How useful is the real time data without online execution. [What we need are] online discount brokers that will enable us to buy at the best Bid price and sell at the best Ask price in real time without the intervention of these money hungry Nigerian brokers. I live in the UK and can buy and sell any US equities or derivatives from the comfort of my home except in Nigeria. Could anyone please tell me how to subscribe to this N250 per month real time data feed and the name of any online broker that caters for self-directed traders like me?’ I rest my case.

If the brokers insist on maintaining their exclusive preserve over trading, then it is a waste of time for the NSE to pretend that it wants to democratize access to information. Now that the Exchange wants to open its kimono, it has to go all the way. No half measures.

I am aware that Professor Ndi Okereke Onyiuke, the director-general, has received proposals from credible vendors to build an online trading platform for the NSE. If accepted, this could be the grand lady’s enduring institutional legacy. The late US President Reagan’s call to Mikhail Gorbachev, the General Secretary of the Communist Party in the former USSR, in a 1987 speech is apt. Speaking of the Berlin Wall, that symbol of the Red Curtain that divided Europe for decades, he demanded that his Russian counterpart ‘tear down this Wall.’ Will ‘Madam D-G’, as she is widely known, take up the demolishing challenge?

The first time I saw the ‘look but do not touch’ sign was at the museum. In a way, maybe the NSE’s newest innovation is already a museum piece from the start. It has no utility. Any investor interested enough to want real time prices would also want real time execution. Until the NSE creates an affordable online trading solution that permits these investors to trade on the same basis as brokers on the floor, last week’s announcement will remain a cruel joke. Put differently, the management of the NSE has just distributed free knives to those going into a gun fight. Stay tuned for the mauling.

The original article may be read here on the NEXT website.

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