Improving Liquidity & Market Depth in Africa’s Capital Markets: Why Market-Making and Payment Innovation Matter
Africa’s capital markets are evolving rapidly, yet liquidity and market depth remain critical challenges across the continent. Fragmented infrastructures, limited market-making activity, and slow cross-border transaction processes restrict both investor participation and the growth of new financial instruments.
However, progress is accelerating. With the rise of market-making programs, modern electronic trading solutions, and new pan-African payment rails like PAPSS enabling instant local-currency settlement, the foundation for deeper, more resilient markets is finally taking shape.
In this article, we explore the landscape, the opportunities, and the future roadmap drawing on Horizon Trading Solutions’ expertise in electronic trading and the transformative role PAPSS can play in unlocking African capital markets.
Africa’s Liquidity Challenge: What’s Holding Markets Back?
Despite strong economic growth and rising investor interest, African exchanges struggle with:
- Thin order books, leading to large price swings on relatively small trades
- Wide spreads, making it costly for investors to enter or exit positions
- Fragmented and often outdated infrastructure, slowing execution and settlement
- Limited cross-border participation, due to currency and payment frictions
These challenges ultimately constrain investor confidence and hinder capital formation — especially for smaller or emerging markets.
How Market-Making Can Strengthen African Markets
Market-making is a proven lever for building healthier, more liquid markets. By continuously providing buy and sell quotes, market makers:
- Ensure continuous trading
- Narrow spreads, reducing transaction costs
- Enhance price discovery
- Increase market depth
- Boost investor participation
But for market-making programs to succeed, African markets need certain enabling conditions. To do so four pillars are essential:
- A Clear Regulatory Framework
- Defined obligations (minimum quote sizes, maximum spreads)
- Incentives such as reduced fees or tax relief
- Strong supervision to prevent abuse
- Efficient Trading Infrastructure
- Real-time trading and settlement systems
- Access to reliable market data
- Integration with clearing houses
- Robust Risk-Management Tools
Market makers must be able to hedge efficiently using:
- Repos
- Derivatives
- Short-selling mechanisms
- Aligned Incentives
- Rebate schemes
- Performance-based rewards
- Long-term liquidity-provision programs
Several African markets are already moving in this direction:
- Johannesburg Stock Exchange (JSE): Active market-making in ETFs and derivatives
- Nairobi Securities Exchange (NSE): New frameworks for ETFs and corporate bonds
- BRVM & Botswana Stock Exchange: Exploring designated liquidity providers
These initiatives demonstrate growing recognition of market-making as a catalyst for market development.
Where Payments Meet Capital Markets: The Role of PAPSS
One of the most powerful developments highlighted in the presentation is PAPSS, the Pan-African Payment and Settlement System. With presence in 19 countries, 160+ connected banks, and access to over 500 million bank accounts, PAPSS enables real-time, local-currency transactions across borders .
Why does this matter for capital markets?
Because settlement inefficiencies are one of the biggest barriers to cross-border trading.
Today, transactions between African countries often rely on intermediary currencies such as USD or EUR, increasing cost, risk, and delays. PAPSS eliminates this friction by enabling:
- Instant local currency clearing
- End-to-end settlement in seconds
- Integration with national switches and RTGS systems
- 24/7/365 availability
This creates a powerful foundation for pan-African market connectivity.
AELP + PAPSS: Unlocking Cross-Border Trading at Scale
Combined with the African Exchanges Linkage Project (AELP), PAPSS can transform how investors access markets across the continent.
A typical cross-border trade, simplified :
- An investor places a buy order in Country A in local currency.
- The order is routed through AELP to an exchange in Country B.
- PAPSS instantly processes payment and settlement in both local currencies.
- Brokers in both countries receive confirmation within seconds.
- No foreign correspondent bank. No dollar dependency. No multi-day settlement.
This frictionless process can dramatically increase cross-border investment and contribute to healthier, more diversified capital markets.
Tomorrow’s Challenge: Scaling the Ecosystem
Looking ahead, Africa’s capital markets can unlock substantial value by:
- Expanding market-making frameworks across more asset classes
- Strengthening local currency liquidity
- Enhancing infrastructure for electronic, automated trading
- Integrating more markets into pan-African payment systems
- Supporting innovation across structured products, ETFs, and derivatives
Final Thought
Liquidity is the lifeblood of capital markets. By modernizing infrastructure, implementing robust market-making programs, and leveraging payment innovations like PAPSS, African exchanges can create deeper, more resilient, and more accessible markets.
The building blocks are already here and the momentum is undeniable.
African capital markets face thin order books causing large price swings, wide bid-ask spreads that increase transaction costs, fragmented and outdated infrastructure, and limited cross-border participation due to currency and payment frictions. These challenges constrain investor confidence and hinder capital formation, especially in smaller or emerging markets. Market makers continuously provide buy and sell quotes, which ensures continuous trading, narrows spreads, enhances price discovery, and increases market depth. For market-making programs to succeed in Africa, they require a clear regulatory framework, efficient trading infrastructure, robust risk-management tools, and aligned incentive structures. PAPSS (Pan-African Payment and Settlement System) is a payment infrastructure present in 19 countries with over 160 connected banks, enabling real-time, local-currency transactions across African borders. It eliminates the need for intermediary currencies like USD or EUR, reducing cost, risk, and settlement delays for cross-border capital market transactions. The African Exchanges Linkage Project (AELP) routes trade orders between exchanges in different African countries, while PAPSS instantly processes payment and settlement in both local currencies. This combination eliminates the need for foreign correspondent banks and multi-day settlement, dramatically reducing friction in cross-border investment. The Johannesburg Stock Exchange (JSE) has active market-making in ETFs and derivatives, while the Nairobi Securities Exchange (NSE) is developing new frameworks for ETFs and corporate bonds. The BRVM and Botswana Stock Exchange are also exploring designated liquidity provider models to strengthen their markets.Frequently Asked Questions
