Since the NSE is afraid of introducing market-makers to provide a bit more liquidity into the bourse, and brokers are broke, why not allow shorting of shares formally?
I figure looking at some of the past trade patterns that this already happens anyway. Kichini chini, Kenya-style.
Briefly, short selling works like this. I go to JM and borrow 1m HFCK shares paying him Ksh1 per share as borrowing fee. We agree I'll return them in 4 weeks time. I then sell them immediately say at Ksh17.50 per share. I sit back having (a) surmised that my trade won't go unnoticed or (b) had some inkling that HFCK was due release some nasty news. And buy back the shares at Ksh15. I give JM his shares back. JM makes a Ksh1m and I make something similar.
It would be a winner for all.
- Brokers-would get their usual commission per transaction.
- Long-term investors get to earn something while awaiting their horizon to mature.
- Bourse has increased activity and interest.
- Short-term investors get interested in the market.
- Even lawyers get a bit of the crust in creating and signing off contracts although in most occasions the broker can facilitate.
So where is the problem? Are Kenyans only ever to be interested in the NSE when we have an IPO or a bull run?