All you need to know about Uganda Securities Exchange new automated trading system

The Uganda Securities Exchange(USE) yesterday launched automated trading system that’s far much cheaper, faster and more efficient than the previous method of trading.

Trading using the open outcry system

The organisation has been using floor trading where stockbrokers meet at Forex trading courses at a specific venue (referred to as a trading floor) to buy and sell financial instruments using open outcry method to communicate which each other. Open outcry involves shouting to transfer information primarily about buy and sell orders.

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In an open outcry auction, bids and offers must be made out in the open market giving all participants a chance to compete for the order with the best price. New bids or offers would be made if better than previous pricing for efficient price discovery.

The open outcry system, however is being replaced by electronic trading systems. Electronic trading systems are faster, cheaper, more efficient for users, and less prone to manipulation by broker/dealers.

What is automated trading?

The automated trading system is a computer-based trading applications set up to automatically buy and sell securities on an exchange.

Why commence electronic trading?

Automation also enhances both liquidity and flexibility with regard to the time it takes to conclude a deal. The current settlement period is 5 working days. However with automation, and the elimination of inefficiencies brought about by the paperwork involved, the transaction period will be shortened to T + 3, which is more in line with international standards.

How do investors participate in automated trading?

Every broker member of the Uganda Securities Exchange shall have access to the automated trading facility. As an investor, you access the automated trading service through your broker’s automated trading service. You will still have to fund your account before placing orders with your broker.
Once you’ve funded your account for automated trading, your orders shall be routed to the automated trading facility through the broker and executed according to the terms you have selected.

Can investors place their orders online directly?

Investors will still initially place their orders through their brokers. In the near future, investors will have the opportunity to have online trading through their brokers trading system. If you discover over time that you don’t like a particular service, you can unsubscribe and move on to another one.

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How do investors track their investments with the new system?

Clients can track how their investments are executed by requesting statements from their broker. If clients are unhappy with the broker’s performance, one can change brokers while maintaining their account.

Automated trading systems appeal to investors who understand how the market works and want to have more control over their trading. There’s risk involved with automated trading just as there is risk involved in manual trading.

What should investor know about failure of the system that is being used for placing orders?

Every online trading client should understand that there could be a possibility of failure of system which could include failure at various points including network failure, connectivity failure etc. Generally, the trading members have alternate ways of servicing the investors in the eventuality of such failures. In order to mitigate risks arising from such failures, investor before starting trading should understand from the trading member about ways and means of dealing with such failures, steps that investor needs to take for knowing his position, closing the position etc.

About the USE

The Uganda Securities Exchange (USE) was licensed to operate as an approved Stock Exchange in June 1997 by the Capital Markets Authority of Uganda and began formal trading operations in January 1998. The Exchange is governed by a Governing Council whose membership includes licensed broker/ dealer firms, investment advisors, a representative of investors and a representative of issuers. Trading on the exchange is facilitated by 8 licensed broker firms and 4 custodians. There are 16 listed companies, with a total market capitalization of around Ushs 27 trillion (US$ 9 billion). CEO for USE is Mr. Paul Bwiso.

The Exchange is a central place for trading of listed securities by licensed brokers/dealers. It provides a credible platform for raising of capital; through the issuance of appropriate debt, equity and other instruments to the investing public in a regulated environment. In this way, the Exchange provides essential facilities for the private sector and government to raise money for business expansion and enables the public to own shares in companies listed on the Exchange.


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