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Online Trading in the Age of Distributed Ledger Technology (DLT): The Doubts, the Pains, and the Opportunities

Efficiency in the capital market is measured by the ability of securities prices to reflect the current state of information in the market. Efficiently regulating information and market activities have become more challenging on rising trading scales and emerging technologies. While technological development has increased the efficiency of large trading, the scale and speed of technology development have become a new concern for regulatory efficiency. Technological development has increased trading accessibility, automated matching system, cross-border trading, and information symmetry. But it also raises concerns around regulating the multiple trading platforms that trailed the tech evolution. The development has particularly given rise to an influx of unregistered investment platforms that partner with registered brokerage firms to operate in the country. This has threatened the credibility and safety of investment in the Nigerian capital market. 

The Securities and Exchange Commission (SEC) modified its consolidated rules and regulations to evaluate the sub-brokers requirements for digital platforms to increase the efficiency of regulation relating to tech development. The change has partially resolved the problems, particularly for the equity markets. However, the proliferation of dubious trading platforms undermines the regulatory thrust of the commission. 

Also, despite the halt in approval for cryptocurrency trading in the country, investors' participation in the market has increased significantly on the back of decentralised technology, reflecting the limitations of traditional regulatory efforts. However, it highlights the prospects of decentralised regulation, where operators in the market self-regulate each trading in real-time. For instance, in contrast to cryptocurrencies, which support real-time transactions, allowing investors to convert assets to cash readily, liquidity conversion for online transactions on the Nigerian capital market is still relatively high at T+3 for settlement time. Contemporary investors prefer liquid assets. Hence, the preference for tech-enabled securities and platforms appears to be boosting the growth of the cryptocurrency market. 

Generally, technological adoption has made regulation more effective and efficient than the traditional trading era (see illustration 7 below). It has accelerated trading and participation in the capital market. However, the regulation must be stringent to keep up with technological advancement to achieve a more credible, speedy, and efficient market. Nigerian Exchange Group (NGX) plans to use blockchain for stock settlement in 2023, and the SEC proposed regulatory framework should improve the performance of the Nigerian capital market. 

Illustration 7: Regulatory Efficiency in Nigerian Capital Market 

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Online Trading in the Age of Distributed Ledger Technology (DLT): The Doubts, the Pains, and the Opportunities