Services
Services
Guarantee Fund
The guarantee fund is a fund set up to ensure financial integrity in the securities market. It is a mechanism managed by CDSC to ensure that trades will be settled among CDAs (i.e. the selling CDA will deliver the securities and the buying CDA will effect payment). The fund is made up of:
- A contribution of Kenya Shillings five million put up by Central Depository Agents (or such higher amount as the central depository may from time to time, in consultation with the Authority and the Nairobi Stock Exchange, determine)
- All penalties and fines imposed by the central depository
- Money accrued from interest and profits from investing the Fund’s moneys
- A levy for every transaction through the securities exchange as approved by the Authority
- Contribution from the revenue of CDSC as its Board may from time to time determine
- Funds hitherto constituting the Nairobi Stock Exchange Investor Compensation Fund
- Such other funds as the Board of CDSC, with the approval of the Authority may determine.
Guarantee fund- Clearing and settlement services
Rules and requirements
- Only persons prescribed under section 9 of the Central Depositories Act 4 of 2000 and part II of the Central Depositories Operational Rules shall be eligible for appointment as a CDA.
- Rules and procedures
- Central Depository (Operational) Rules 2003 of the CDSC Ltd.
Services
Depository Services
Pledges & Releases
The Depository Services also include the recording of pledges in favour of lending institutions with the agreement of both the borrower & the lending institution. This is the process by which shares are used as collateral. A standard pledge form (CDS 5) is completed by the client and approved by the CDA and the lender. The completed form is delivered to CDSC by the CDA where the securities are frozen and confirmation is done directly to the lender. Once the loan has been cleared, a release form (CDS 6) is completed by the lender and the CDA, and delivered to CDSC where the shares are released.In the records of CDS, a pledgor remains the shareholder of the pledged securities.
Central Depository Agents (CDAs) open and maintain Securities Accounts.
However, the pledgor cannot access these shares unless the pledgee submits the appropriate pledge release instruction (CDS 6) in accordance with CDSC Procedures.
Securities Accounts
Central Depository Agents (CDAs) open and maintain Securities Accounts. These comprise Clients' Securities Accounts and Participants' (proprietary/dealers) Securities Accounts which are segregated from each other. Clients' Securities Accounts are opened through and/or registered with a Central Depository Agent (Stockbroker/Investment Bank or Custodian Bank). A Client may open accounts with several Central Depository Agents.
Deposits
CDSC accepts deposits of securities certificates from Clients through CDAs. To use the CDSC Depository services, the investor opens a Securities accounts in the CDS system through a CDA. Deposited certificates are forwarded to the registry of the issuer by CDSC for confirmation of the authenticity thereof. Clients' Securities Accounts are credited only upon receipt of the written confirmation of the authenticity of the deposited certificates from the registry. This process eliminates the risk of introducing invalid securities in the CDS system.
Transfers
An investor may register a CDS account with more than one CDA (broker/investment bank). The CDS account number remains the same. The investor can transfer securities from one CDA to another by making the request through their current Central Depository Agent.
Services
Trade reporting & Clearing
Settlement
There are various internationally recognized operational models of Delivery vs Payment (DvP) settlement. CDSC employs DvP Model 2, where securities are settled in the CDS system on a gross basis (trade-for-trade processing) while funds are settled on a net basis through the settlement bank.
All settlement participants are required to open a settlement account with the Settlement Bank. On settlement date, funds transfer amongst participants takes place on a net basis at the Settlement bank. Simultaneously the seller’s Securities Account is debited and the buyer’s Securities Account is credited in the CDS. This ensures strict delivery versus payment.
By implementing strict delivery versus payment within a rolling T+3 settlement cycle, the CDSC significantly improved the efficiency of the settlement mechanism in the stock market. This simultaneous exchange of cash and securities, guarantees irrevocability of settlement and offers the high level of customer protection.
Central Depository Agents (CDAs) open and maintain Securities Accounts.
When CDS operations commenced in November 2004, concluded trades at the Stock Exchange were recorded in CDS through a manual process. In September 2006, the CDS was linked to the trading system at the Stock Exchange. This eliminated the manual process of data capture. Trades executed in the Automated Trading System (ATS) are automatically fed into the CDS system and the relevant securities accounts are updated on a real-time basis (pending buy, pending sale). Transaction reports and settlement obligations are generated by CDSC and made available to Central Depository Agents (CDAs) on trade date (T+0).
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