| dc.description.abstract | Exchanges automation world over are associated with changes in vanous market
characteristics. These market characteristics include the market returns, volume,
volatility, liquidity, bid-ask spread among others. These characteristics of stock trading
are linked to expected rate of return on common stock and hence important to an investor.
Trading of financial securities in Kenya started in the 1920's as a sideline business
conducted by accountants, auctioneers, estate agents and lawyers, all of European origin,
who met to exchange prices over a cup of tea. The trading system that was employed then
was manual, first a call over system and then the open out cry system and in 2004 the
CDS was launched, followed by ATS in 2005. The call over and open out cry systems of
trading have great limitations in terms of the traded volumes they can handle and the
speed at which trade can be executed and hence the need for automation.
The objective of the study was to identify the behavior of volume, volatility and liquidity
under three trading systems namely, manual trading, partial trading (CDS) and full
automation (ATS) at NSE with a view to determine whether automation has affected the
three market characteristics.
The findings of the study revealed that automation at NSE is associated with increased
volume of trading, increased volatility of quoted stocks and increased liquidity. Greater
volumes of trade and volatility were noted when NSE was full automated compared to
manual or partial automated systems. However though there was a noted increase in
liquidity on introduction of CDS, the liquidity declined on introduction of ATS. | en |
