CDS Account: How to Buy and Sell Shares in Kenya

  • Investing in stocks is a great way to ensure financial growth and stability.

    Putting your money in stocks basically means buying shares in companies that have been listed in the Nairobi Securities Exchange which then entitles you to be part of that organization’s earnings.

    You can buy shares in companies like Safaricom, KCB, Sasini, Kenya Airways and many more.

    However, it is important to remember that this is not a quick and easy way to make a tone of money. At the same time, you are also not guaranteed a return.

    If you are new to this form of investment, it will take you time to be familiar with all the various approaches to financial analysis and valuation.

    In this article, you will learn more about what shares are, how to buy shares in Kenya, what’s a CDS account, how to choose a listed company to buy from, and the role of the NSE and brokers in buying and selling shares.

    What are shares?

    Shares are pieces of ownership of an enterprise or company.

    When you buy them, you become an investor who owns a piece of a company’s losses or profits.

    Your ownership of the listed company and the profit is equal to the total number of shares you own.

    You also become a shareholder of the company with the expectation of making a profit.

    Share profits come through gains in bonuses, share prices, rights, and dividends, and other methods of income generation that are used by the company.

    Companies or enterprises sell shares to borrow or raise money from institutions, governments, and ordinary citizens.

    The intention is to expand their activities so that they can make even more profits.

    When you buy their shares, you have the power or right to influence or make decisions about how the company runs, as both the owner and lender of money to the company.

    By lending money, you expect profits as a reward for enabling the company to expand its business activities.

    Note: It is worth mentioning that you do not have to own shares on your own.

    The Nairobi Securities Exchange (NSE) allows two or more people to pool their money together in one investment portfolio called a pooled fund or simply a fund.

    A fund buys a specific number of shares that are picked out and managed by fund managers.

    By putting money into a fund, you will not have to work on choosing the right investments or decide which companies to invest. Since you will not buy the shares directly as an individual, you will not have the power or the right to vote on certain company decisions. Only direct shareholders enjoy these rights.

    Choosing a Listed company to buy shares

    Before buying the stocks of any company, it is vital that you conduct thorough research on the company before investing in their stocks.

    Do not be tempted to invest in a company based on its reputation or big name.

    The stock market in Kenya doesn’t care, and even big-name companies have failed to produce results in recent times.

    Follow the tips below to choose the best company:

    1. Invest in a company whose business model and industry you understand to remain updated and informed with its share performance.

    The advantage is that it will prevent you from the hype that comes with such investments.

    2. Evaluate the financial health of the company.

    Go through years of the company’s financial statements to understand whether it is growing or not. Look for consistency in finances and profitability. One good quarter should not tempt you into making such a huge investment decision.

    3. Does the company have any debt, and how much?

    The share price of companies listed by NSE Kenya with more debt tends to be volatile than companies with no debt.

    The income generated by the company goes to debt and interest repayment and not growth.

    Determine a company’s dividend before investing. A dividend is money paid out to stock investors.

    While many people consider it a regular income, it is often a sign that a company is in good financial health.

    At the same time, you should check at the company’s dividend payment history. Is the dividend going up or down?

    4. Check the price of their stocks.

    Some investors tend to go with cheap stocks and other expensive ones.

    A company’s stock may be cheap because its business is slowing down or growing less.

    Their stock may also be expensive because the market is expecting the company to grow its revenue to rise rapidly in the coming years.

    As a rule of thumb, buy stocks you can fairly expect to increase in value later. The best way to approach this situation is to look at the company’s stock value combined with future expectations in earnings.

    How to buy and sell shares in Kenya

    You can buy and sell shares in Kenya in three main ways.

    You can use:

    a)    A stockbroker

    b)    An online broker

    c)    An investment manager or a financial adviser

    Although it is possible to buy shares through an online broker, in Kenya, only a few exist.

    Note: You can only purchase Kenyan securities via a listed stockbroker.

    Kenyan stockbrokers have portals where investors can buy shares in Kenya online.

    You also need the right documents to start buying shares at the NSE.

    First, you will need a Central Deposit and Settlement (CDS) account.

    You can open the account directly through the Central Bank of Kenya (CBK) or through a brokerage firm or a client account through authorized dealers that include investment banks, commercial banks, investment advisors, and stock brokers.

    It is free to open and maintain a CDS account if you open it directly through the CBK.

    As an individual investor, you can open the account either individually or jointly.

    How much do you need to buy shares in Kenya?

    You will need Ksh 1,200 to open a trading account and a monthly fee of Ksh 100 to keep it active.

    Depending on the stock you want to invest, you will need at least Ksh 5,000 to buy shares.

    Note: The minimum number of shares you can buy is 100.

    The role of the NSE and brokers in buying and selling shares

    The NSE and stockbrokers play important roles in the buying and selling of shares in Kenya.

    The NSE offers a trading facility or platform for local and international investors who want to gain exposure to the Kenyan market and grow their portfolios.

    The Nairobi Stock Exchange online trading platform helps companies gain access to cost-effective capital.

    In Kenya, a company cannot sell its shares if it is not listed by the NSE.

    Role of the NSE is to:

    1. Provide a market or platform of securities

    2. Provide a platform through which people can buy and sell securities or shares

    3. Enhance the discovery of share prices through the interaction the forces of demand and supply

    4. Allow the provision of information to industry players and investors

    5. Enhance the transfer of share ownership between investors through brokers

    6. Facilitate equity financing.

    Role of stockbrokers in the NSE is to:

    1. Serve as a vehicle through which investors buy or sell stocks.

    You can only sell and buy shares in a company in Kenya through stockbrokers.

    2. Offering skilled advice to investors on the types of stocks to buy or sell.

    3. Arranging an investor’s portfolio and when, what, and how much money to set aside for investing in stocks.

    4. Keeping a close eye on Kenya’s equity market on behalf of the investor.

    5. Updating investors on the prices of various stocks in the NSE.

    6. Acting on behalf of their clients to buy and sell shares upon request.

    7. Brokering securities such as mutual funds and bonds.

    8. Stockbrokers are the agents that enable investors to access the stock market.

    9. While they have many roles, they also help their clients learn how to buy shares in NSE Kenya from companies that are listed and show them how to sell shares in Kenya.  

    What is a CDS account?

    Central Depository System or simply CDS account enables you to buy and sell shares at the Nairobi Stock Exchange (NSE).

    You must have a CDS Account to buy and sell shares and other securities at the NSE.

    Functions of a CDS account are similar to your savings account, where your cash savings are stored.

    No matter where you have bought your stocks, they will be kept safely on your CDS account.

    If you want to sell your stocks, they will be transferred from your personal CDS account to the account of the buyer.

    A CDS account is issued by the central Deposits and settlements Corporation (CDSC) Ltd, a company that facilitates holding of shares electronically thus eliminating the need for physical share certificates.

    The CDSC is a parastatal (state corporation0 established under the Central Depository Act of 2000.

    How to open a CDS account

    Investors may choose to open the CDS accounts directly with the Central Bank of Kenya or open a client account through an authorized agent which includes, commercial banks, investments banks, stockbrokers and investment advisors. It should, however, be noted that no fee is charged for opening and maintenance of the CDS accounts opened directly at the Central Bank of Kenya.

    CDS accounts may be opened in the names of individual investors or corporate entities. Individual investors may open CDS accounts either singly or jointly, while the corporate investors include companies, co-operatives and other societies, insurance companies, banks, non-bank financial institutions, NGO’S and entities established by statutes, which are mainly State Corporations.

    Requirements for Opening a CDS Account with the Central Bank of Kenya (Individuals or Joint Accounts)

    1. Individuals may hold a single or joint CDS accounts but NO minor accounts.

    Each individual CDS account holder/applicant MUST complete the CDS accounts specimen signature mandate card (the card) which can be collected from any of the Central Bank of Kenya Branches in Nairobi, Mombasa, Kisumu, Eldoret or the Currency Centers in Meru, Nakuru, and Nyeri.

    2. The card (s) should be completed in BLOCK LETTERS, neatly and clearly.

    3. Names MUST be written in the order that they appear on the identification document.

    4. NO alternations/errors.

    5. The card MUST not be folded or disfigured in any way.

    6. Signatories to the CDS account will be required to sign the card in the presence of a designated CBK Officer or any Authorized Agent.

    7. On completion applicants will personally submit the duly completed card (s) together with: One recent coloured Passport size photograph of the Account Holder.

    The reverse side of the photograph MUST be certified by the applicants' Bankers and stamped. The photograph must NOT be stapled or glued to the card.

    8. The original and clear copy of the National Identity card/valid Passport/alien certificate for verification. (Note that the copies will be retained by CBK)

    9. Two signatories of your Bankers, whether a Commercial Bank or Financial institution must sign and stamp the card on the space provided, confirming the Bank account details.

    Note:

    The Commercial Bank/Financial institution under note 9 above must be licensed by the Central Bank of Kenya.

    Payments will be made to the Bank account specified in the mandate card.

    On receipt of all the requirements, CDS account application (s) will be processed within seven working days.

    Change of address may be advised through a letter signed by signatories as per the mandate.

    To change details of the CDS account one completes a CDS card and follows all the requirements mentioned from no. 1 to 9.

    CBK office can be contacted on Tel +254 020 2860000 or via email:ndo@centralbank.go.ke/applications@centralbank.go.ke/visit our offices in Nairobi, Kisumu, Mombasa, Meru, Nakuru or Nyeri.

    How to open a CBK-CDS Account for Kenyans in Diaspora

    Please note that ONLY Kenyans living in the diaspora and who hold a local (Kenyan) commercial bank account are eligible to apply for a CDS account directly at Central Bank of Kenya (CBK).

    Non-Kenyans and Kenyans without a local commercial bank account can however still invest in Kenya government securities as nominees of authorised CBK agents which include commercial banks, investment banks, and stock brokers domiciled in Kenya.

    Here are the steps:

    1. Visit the Central Bank of Kenya website www.centralbank.go.ke and download mandate card. (Individual) for individual investors and Mandate card (Corporate) for corporate investors

    2. Print the appropriate mandate card and fill out your details.

    3. Attach a recently taken coloured passport size photograph and a copy of investor’s Kenyan National Identity Card (ID) or Passport. These documents MUST be certified by your bankers (A local commercial bank based in Kenya).

    4. Have the filled in CDS mandate card certified by your Commercial bank.

    5. The investors' Commercial bank will certify the completed CDS mandate card by way of appending the bank’s stamp and signatures of two of their authorised signatories on the space provided

    6. Scan the completed CDS mandate card and email to ndo@centralbank.go.ke

    7. Send the physical mandate and attachments by post to The Director, Financial Markets Department P.O. Box 60000- 00200, Nairobi, Kenya

    8. Once the CDS account has been opened, the investor will be notified of the CDS account number via email as provided on the CDS mandate card submitted to CBK. A formal letter of notification will follow thereafter.

    Guidelines for Submission of Diaspora Bids (Application) for the Bond

    1. Once the investor has been allocated and notified of their CDS account number, they can then proceed to apply for the Treasury bond that is on offer.

    2. To apply for the bond, download the bond application form www.centralbank.go.ke/images/docs/forms/modm/TREASURYBONDSFORM-2016.pdf

    3. Fill in the following key details: • Issue Number • Duration • Value date • Total Face Value - Amount the investor is willing to invest in Kenya Shillings • (Minimum Kes 100,000 and additional in Multiples of Kes. 50,000 with a maximum of Kes 20 million per CDS account per investor for) • Interest Rate (Price)

    4. Investor’s details- complete the investor’s details as provided required in the form. i.e. Name, CDS Number, telephone contact etc.

    5. Append a signature on the application form and email to ndo@centralbank.go.ke or fax to +254202863726/3666

    6. Please note that the deadline for submission of application forms.

    7. Do not make payments for the bond until notified by the Central Bank of Kenya of the actual amount to pay. It is the responsibility of the investor to contact Central Bank of Kenya to obtain details of the tap sale results.

     Dissemination of results for Successful Diaspora Applications

    1. All successful applicants will be notified of the allocation and Amount they are required to pay by contacting Central Bank of Kenya on Tel No. +254-020-2860000. MODE OF PAYMENT FOR SUCCESSFUL BIDS

    1. Deadline for payment for successful bids is on the following Monday at 2.p.m Kenyan time

    2. All successful applicants will be required to pay the exact payable amount (no less, no more).

    3. Investors whose applications were successful will instruct their local commercial banks to remit the payable amounts.

    Note: For any queries and information, please contact The Director, Financial Markets Department P.O. Box 60000-00200, Nairobi, Kenya Tel +254202863060.Or email ndo@centralbank.go.ke

    CDSC SMS Service

    With the growth in investor numbers, CDSC introduced an SMS service which gives investors 24-hour access to their CDS accounts enabling them to keep track of their shares on their mobile phone anywhere and at any time.

    SMS service access

    One can access the SMS service by sending an SMS with the word Register to 22372 and following the instructions thereof to complete the registration.

    The SMS service allows you to access your CDS account and keep track of your shares on your mobile phone anywhere and at any time. By registering to the service, you will always be aware of your current shares portfolio and of any transactions in your account. 

    Benefits

    • Secure access to your CDS account from anywhere and at any time.
    • Receive updates on announcements made by listed companies
    • Easy and simple registration from your mobile phone.
    • Instant alerts on any activity in your CDS account.

    Features

    • Receive instant alerts on your mobile phone whenever a transaction occurs in your account (e.g. Purchase, sale, shares transfer, deposit, pledges etc)
    • Check your shares portfolio balance anytime.
    • Receive a mini-statement from your CDS account, showing your last few transactions.

    Each SMS costs Kshs 10, and the service is currently available on Safaricom and Airtel network.

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