Optimization

In an emerging economy like Kenya, the number of stock market players has a direct impact on the capital market operations. Too many brokers could lead to shrinking of profit margins for brokers, overcrowding of the trading floor (for floor based systems), insider trading, parallel informal markets and so on. On the other hand, too few brokers could lead to low levels of service, limited investment instruments, long wait for companies that want to list, long queues of investors at the brokers' offices, transaction delays, insider trading, cartels, and also parallel informal markets. Optimality would be desirable where a wide range of securities are offered, transactions executed within a reasonable time, short queues and minimal delays in refunds, and where all the players are in total compliance of existing regulation. Increased activities at the stock exchanges attract new stockbrokers into the industry. This begs the question, how many more should be admitted with each capital market expansion? This publication set out an objective criterion for determinining the optimal number of stock brokers at the Nairobi Stock Exchange.