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DSE low turnover puts stock brokers on cliff-edge

DAR es Salaam Stock Exchange Stock (DSE) stock brokerage business is hanging on a cliff-edge as the equities market recorded the first ever in the history zero trading business last Friday.

Some analysts have it that the problem, apart from coronavirus pandemic, the decline in turnover is also attributed to the introduction of off-market transaction rules that lowed block amount to 200m/- from 1.0bn/- and the trend was started to be seen since January.

The drop now threatens stockbrokerage business of the second largest exchange in East Africa.

DSE had 13 stockbrokerage firms as of last year but dropped to 12 this year are mostly, especially small ones; depend on 1.7 per cent fees from trading activities to cover expenses and survival.

The largest ones, about three brokerage firms, have other sources of income but they will surely also fill the pinch of dropping turnovers.

Thus, some stockbrokers called for immediate reforms to rescue the situation that was not only amplified by coronavirus contagious on Dar bourse but also caused by reducing off-market trading block amount.

Last year, the bourse management introduced new offmarket block transaction rules after receiving a nod from Capital Markets and Securities Authority (CMSA) and reduced the threshold from 1.0bn/- to 200m/-.

The rationale for off-market deals was to allow transactions of large blocks of shares without affecting the share’s price.

However, the move now locks out retail investors by creating parallel markets for active counters which are accessible to institutions and high net worth investors.

The solutions now are not to raise the entry amount for a block trade but to relax the stringent laws that limit equity price movements.

For instance, the price cap of 5.0 per cent for counters with capitalisation above 1.0tri/-has locked all such counters into illiquidity and the cap could be raised to allow competitive pricing.

In May, DSE total equity turnover plummeted by 73.4 per cent to 373.36m/- compared to 1.4bn/-in April.

The plummeting turnover meant slower business and less recoup by all beneficiaries of the stock exchange value chain and may lead to job loss and brokerage closure.

Also the government is losing the much needed tax income. Zan Securities Chief Executive Officer, Raphael Masumbuko said however that despite the decline they are projecting some improvement as the first quarter comes to an end.

“The equity market performance declined this week, however, we expect some improvement as we approach the end of this quarter,” Mr Masumbuko said in the firm’s Weekly Market Wrap-ups over the weekend.

Despite these sentiments and easing some social restrictions globally, the DSE turnover continues to trade on bearish mode going against global trend.

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