One of the trends of the past decade in the US, UK, and some European countries has been the move to add commission free trading in equities.
That has kind of run its course in those markets but it happened for a number of reasons. One was that you had improved technological access. DriveWealth and Alpaca both made it easy for companies to offer clients US equities cheaply via their APIs.
At the same time, there was demand from investors. A US bull market, arguably still in swing, meant that more people wanted to buy stocks listed in the Land of the Free.
The final component was the ability to offer fractional shares. Many US firms continue to trade at high share prices. Fractional shares provide a more affordable way to access these companies.
All of this is a roundabout way of looking at Scope Markets’ B2B division. We discussed this last year with Michael Ayres, the CEO of Scope Markets’ parent company Rostro Group.
But more recently Scope Markets has launched non-leveraged equities CFDs. And the firm is gaining some traction from them.
There are a lot of parallels with the UK or US, prior to the rise of the newer commission-free players.
Currently Kenyan investors typically pay a 2% commission to buy stocks, usually from their bank. Then they have to pay VAT on the commission of 0.25%.
To top that off, most firms typically have a minimum ticket size of 100 shares. So if you did the minimum order size of Apple shares, it would come in at approximately $22,757, not factoring in fees. That’s a lot for people in the UK, let alone an emerging market.
But like in the rest of the world, there is demand to invest in these companies.
Consequently, Scope Markets has played a similar role to the one that the likes of DriveWealth did in the UK and other markets.
“Kenya is the market we started with for this product but we are rolling out across other regions as well,” Scope Markets CEO Pavel Spirin told TradeInformer. “We’ve already partnered with local banks and are in talks with others to offer this product. Plus we are offering it ourselves via our local regulated entity.”
Spirin says that the firm has seen some initial success on both fronts, with good uptake on the retail side and a lot of positive response from their B2B partners. The company is also planning to do the same in other African markets, notably South Africa.
It’s also worth noting that equity CFDs have proven popular in the UK, albeit among institutional clients, for similar reasons – LSE market makers don’t have to pay stamp duty. So if they offer CFDs on equities, they can do so without having to bake the stamp duty fee into the price they provide to clients.
Whatever the case, Scope basically seems to have taken advantage of an interesting opportunity. If you look at retail equity markets in the US and UK over the last few decades, it has been a mix of demand for lower costs and technology facilitating greater access.
In Kenya, the smartphone penetration rate is now over 60%, having steadily ticked up over the last decade. This means people now have easy access to markets through their phone but not necessarily the lower costs which they need to invest. You see the same trend across Africa.
Time will tell if this will actually pan out but Spirin notes that Scope Markets is now in talks with a major regional bank to offer the product. Clients on the retail side are also signing up to trade the product as well. Given the problems consumers face are almost exactly the same as they were in other markets, it seems logical to assume the company will do well if it can solve them.