A recent post on the X platform appealed for transaction costs to come down on the Nigerian Exchange (NGX), Nigeria’s main stock market exchange trading platform. The writer appealed on behalf of small retail investors who trade on NGX, saying trading costs are high and not encouraging them to fully participate in the market. He outlined why the high cost of trading on the NGX makes it unprofitable for small retail investors and what lower trading cost could mean for them, if lowered and the exchange becomes more inclusive. When I first read it, it struck me as something that needs examining and debating in the wider market, because it affects everyone who trades or invests in the market.
A move in that direction will make our stock market more competitive and also provide overall economic benefits for the economy.
The ideal: A frictionless market
A major factor in the efficiency of a stock exchange is how “frictionless” it is. A frictionless market is a theoretical ideal characterised by near-zero costs, perfect information flow, and deep liquidity. In such a market, investors can buy or sell any volume of shares without significantly moving the price — a dynamic that prevents bubbles, removes short-selling constraints, and eliminates settlement delays.
While these perfect conditions do not exist in any real-world market, they serve as a vital benchmark. Modern technology has already helped dismantle many traditional barriers; today, information flow is near-perfect, allowing a small retail trader to access the same data as a major hedge fund manager. Improvements in transaction speed and shorter settlement cycles (the recent shifting from T+3 to T+2) have further enhanced market efficiency.
The barrier: High costs and stagnant turnover
A significant component of a frictionless market is the cost of trading. On the Nigerian Exchange (NGX), trading costs include regulatory fees (SEC, NGX, and CSCS charges), brokerage commissions, VAT, and stamp duty. When combined, these costs create a massive hurdle for profitable trading.
High-cost markets discourage retail investors, who are often priced out or forced into “buy-and-hold” strategies just to break even. Furthermore, foreign portfolio investors (FPIs) are highly sensitive to transaction costs and tend to bypass expensive markets.
Currently, a typical trade on the NGX requires a 4.5 percent margin just to break even. This is a major deterrent. Despite massive growth in market size and turnover, driven lately by currency devaluation and inflation, the frequency of trading has remained flat. Investors simply find it unprofitable to move in and out of positions frequently.
A regional comparison: NGX vs. JSE
Among the top three stock markets in Africa (Cairo, Johannesburg, and Nigeria), the NGX is the most expensive. The Johannesburg Stock Exchange (JSE) is approximately 75 percent cheaper than the NGX. While operating costs in Nigeria are admittedly high, the wide gap between the NGX and JSE explains why foreign investors prioritise South Africa. For Nigeria to grow its market and attract more listings, trading volumes and liquidity, it must become more competitive.
The solution: Applying the Laffer Curve
Can the cost of trading be lowered? The answer is a definitive yes. But how?
Halving regulatory fees
While brokerage commissions (around 1.35%) are often discounted to 0.5%–1.0% by stockbrokers looking to encourage volume, regulatory charges remain rigid. By cutting these fees by 50 percent, regulators could trigger the Laffer Curve effect: lower tariffs lead to higher activity. A reduction in fees would likely double or triple trade volumes, ultimately increasing total revenue for the regulators.
Tax reform
Stamp duty should be eliminated, especially since the government now enforces capital gains tax. Removing this layer of friction would encourage higher trading frequency, which in turn increases government receipts through VAT and capital gains tax.
Modernising trade alerts
The current “Trade Alert” system is inefficient and plagued by network issues. It should be replaced with “Email Alerts”, which are essentially free, more reliable, and already the standard for the banking industry.
Looking to the future
The NGX has made significant technological strides over the last decade. Many of those initial infrastructure costs have long been amortized. Both the NGX and the CSCS can afford to reduce their charges while remaining profitable.
To compete within the African space and attract the capital necessary for a $1 trillion economy, the NGX must prioritise growth through competitiveness. Reducing the friction of trading is the most critical step toward that future.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com and marketconversations.substack.com
Lower NGX trading cost and seek growth through competitiveness