Rwanda is the latest country to embrace data vending as a new revenue stream for its stock exchange, following the footsteps of other East African countries like Kenya, Tanzania, and Uganda. The Rwanda Stock Exchange (RSE) is making this strategic move to offset declining trading incomes caused by sluggish equity market performance, shrinking rights issues, and the drought of initial public offerings (IPOs). As the regional markets face similar challenges, diversification into data vending is seen as a key strategy to stabilize and grow revenue.

Regional Stock Exchanges Eye Data Vending as a Revenue Lifeline

Stock exchanges in East Africa, including Rwanda, have traditionally relied on trading incomes and listing fees for their revenues. However, market downturns, fewer IPOs, and lower trading volumes have forced exchanges to explore alternative income streams. Data vending—selling market data to various stakeholders such as brokers, financial institutions, and investors—is one of these options. RSE has taken its first steps into the data vending business to boost its income.

RSE Chief Executive Celestin Rwabukumba noted that while the exchange continues to rely on trading income and listing fees, the introduction of data vending and other services has become crucial in addressing revenue shortfalls. According to Rwabukumba, “We are remaining focused on new products coming to the market, but data vending is part of our diversification strategy.”

RSE’s move into data vending comes at a time when it is struggling to attract new listings. In both 2023 and 2024, no new equities have been listed on the exchange. Despite these challenges, RSE’s efforts to increase its investor base have yielded some positive results. The number of investment accounts grew by 17%, from 59,530 active investors in 2022 to 69,654 in 2023. This increase is partly attributed to the exchange’s efforts to automate trading activities fully and to diversify revenue streams by entering the data vending business.

Rwanda Stock Exchange’s Financial Performance in 2023

Despite the setbacks in new listings and trading volumes, RSE’s financial performance remained resilient in 2023. According to its annual report, the exchange posted a net profit growth of 7%, reaching Rwf 599.5 million ($439,777), up from Rwf 559 million ($410,067) in 2022. Revenues grew by 10%, totaling Rwf 1.46 billion ($1.07 million) compared to Rwf 1.33 billion ($975,652) in the previous year. However, turnover in RSE’s equity market dropped significantly, with a total turnover of Rwf 6.89 billion ($5.05 million) from 33 million shares traded in 566 deals. This represented a 57% decline in turnover compared to Rwf 16.15 billion ($12.1 million) recorded in 2022.

Bob Karina, chairman of RSE, emphasized that despite these challenges, the exchange has made strides in boosting its visibility on the global stage through active participation in international conferences and activities. Karina also pointed out that RSE’s increased efforts in retail investor outreach and enhancing operational efficiency have contributed to raising the exchange’s profile both locally and internationally.

Data Vending in East African Exchanges

Rwanda is not alone in recognizing the potential of data vending. Other East African stock exchanges, including those in Kenya, Tanzania, and Uganda, have already ventured into this business to offset the impact of declining trading activities.

• Kenya’s Nairobi Securities Exchange (NSE): NSE, the largest exchange in the region, has successfully leveraged data vending to boost its revenues. In 2023, NSE recorded a 24.6% increase in revenues from data sales, generating Ksh 116.56 million ($895,994), up from Ksh 93.54 million ($719,040) in 2022. This surge in revenue helped NSE increase its net profit by 34%, reaching Ksh 18.4 million ($141,440) compared to Ksh 13.72 million ($105,465) in 2022. NSE’s annual report highlights the strategic importance of diversifying revenue sources to cushion the exchange from market instability and ensure sustainable growth.
• Tanzania’s Dar es Salaam Stock Exchange (DSE): DSE introduced a comprehensive market data policy in 2021, setting the framework for data vending. This policy allows the exchange to offer a variety of data, including real-time, snapshot, and historical data across its equity, debt, and bond segments. DSE’s market data is accessible through a subscription-based model on its data portal. The exchange aims to ensure that data vending becomes a reliable revenue stream, contributing to its long-term sustainability.
• Uganda’s Uganda Securities Exchange (USE): USE was an early mover in data vending, launching its services in 2018 as part of its broader strategy to diversify revenues. The introduction of data vending has been instrumental in helping USE grow its non-trading income, positioning it as a core component of its business strategy. This diversification has helped cushion USE from volatile market conditions and provided a stable income stream in the face of declining trading activity.

Data Vending: A Strategic Move for the Future

For many stock exchanges, data vending is a relatively new but promising business model. It involves selling market data—including stock prices, trading volumes, company financials, and indices—to institutional investors, traders, and financial data platforms. This data is often provided in real-time or as historical data, allowing investors to make informed decisions.

The data vending business is particularly appealing for exchanges because it offers a scalable, high-margin revenue stream that is less dependent on the day-to-day fluctuations of the stock market. Additionally, as global markets become increasingly data-driven, the demand for comprehensive and accurate market data is expected to grow. This presents an opportunity for exchanges in developing markets like East Africa to not only stabilize their revenues but also position themselves as key players in the global financial ecosystem.

Challenges Facing Data Vending in Emerging Markets

While the prospects of data vending are encouraging, stock exchanges in emerging markets, including those in East Africa, face several challenges. First, the technical infrastructure required to collect, process, and distribute market data can be expensive to implement and maintain. Second, many of these markets are still relatively small, with lower trading volumes compared to more developed markets. This limits the amount of data that can be sold and, consequently, the potential revenue from data vending.

Moreover, the regulatory environment in some of these countries may not be conducive to the rapid expansion of data vending services. For instance, data privacy concerns and the need for stringent compliance with local laws may pose obstacles to exchanges looking to expand their data vending operations.

Future Prospects for Rwanda and the Region

Despite these challenges, the future of data vending in East Africa looks promising. Rwanda’s entry into the business is a positive development that could encourage other smaller exchanges in the region to follow suit. Moreover, the growing importance of data in financial markets means that stock exchanges in East Africa will likely continue to invest in technology and infrastructure to support their data vending businesses.

As the global financial landscape evolves, data vending could become a critical revenue stream for these exchanges, helping them navigate market downturns and remain financially sustainable. For Rwanda, which has already seen a growing number of investors and increased automation of trading activities, data vending could provide the much-needed boost to take the exchange to the next level.

Conclusion

Rwanda’s foray into data vending comes at a time when regional stock exchanges are grappling with declining trading incomes and market volatility. By diversifying its revenue streams through data vending, RSE aims to strengthen its financial position and continue its growth trajectory. While challenges remain, particularly in terms of infrastructure and regulation, the potential for data vending to become a significant revenue generator for East African exchanges is undeniable.

As the demand for financial data grows globally, Rwanda and other exchanges in the region are well-positioned to capitalize on this trend, ensuring a stable and diversified income stream that supports their long-term sustainability.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

24th September, 2024