Last week Bloomberg reported that the Nigerian Exchange (NGX) is planning to use blockchain for stock settlement.
The question is whether NGX purely plans to use blockchain in the backend for stock settlement or whether it’s looking to issue security tokens. We contacted NGX to seek clarification but didn’t receive a response in time for publication.
“For a lot of young and upcoming Nigerians, that is the kind of technology they adopt and we want to see how we can deploy it to grow our market,” Temi Popoola, NGX’s CEO, told Bloomberg.
Numerous stock markets and other financial market infrastructures around the world are exploring blockchain for settlement. Invariably this is a backend solution used by institutions on the wholesale side, so it is almost invisible to end-users. These include the DTCC, ASX and HKEX, amongst several others.
The key benefit is to enable shorter settlement times, reducing counterparty risks.
A different set of organizations are exploring security tokens which are digital assets, including stocks natively issued on a blockchain. In April, South Africa’s central bank announced it had trialed using blockchain for a government bond security token as part of its latest central bank digital currency (CBDC) trial. Europe recently passed legislation allowing for live security token transactions on a limited basis next year and the UK is planning something similar.
Back in Nigeria, last month, the SEC Nigeria published rules for digital asset issuances that include ICOs and security token offerings. So it could very well be that NGX has broader plans.
As the NGX CEO pointed out, the target market is young. When MTN Nigeria listed last year, 85% of investors were under 40. That demographic group makes up 82% of the population, although 54% of Nigerians are 19 or younger. This young demographic is one of the motivators behind the issuance of the country’s CBDC, the eNaira. It’s one of the reasons why Nigeria ranks as the country with the sixth most adoption of cryptocurrencies, according to a Chainalysis assessment.
Meanwhile, 13 African economies have collaborated on a cross border trading project, the African Exchanges Linkage Project.