Switch to electronic shares gains pace Doubl

Ms Rose Mambo, the CDSC chief executive. FILE 

By John Gachiri
 

 

In Summary

• Paper certificates will no longer be recognised after the November 23 conversion deadline.

Nearly half of all shares listed at the Nairobi Securities Exchange (NSE) are set to be converted into electronic accounts from their current form of share certificates in the next six months.\\

The Central Depository and Settlement Corporation (CDSC) says only about 54.58 per cent of the shares listed at the stock market are held in electronic accounts, leaving out nearly half in illiquid paper certificates.

Most of the certificates are held by institutional investors and anchor shareholders of listed entities, who do not need to trade their stock frequently.

“All quoted companies at the NSE have been grouped into three tranches to facilitate dematerialisation (conversion) in a phased out approach. The process will close in November 2013,” said CDSC chief executive Rose Mambo in a statement.

The conversion of shares into electronic accounts is expected to ease trading by eliminating the tedious process of exchanging share certificates.

(Read: Stock market trading to go online)

It may, however, not necessarily increase the free float of shares available at the bourse since huge stakes are tightly controlled by principal and institutional shareholders holding the stocks for the long term.

The CDSC is the custodian of all shares listed at the stock market. The total market capitalisation currently stands at about Sh1.7 trillion.

After the conversion deadline paper certificates will no longer be recognised as proof of share ownership at the stock market. Holders of paper certificates will not be allowed to trade or partake in corporate actions such as share splits and bonus issues.

The CDSC did not provide a breakdown of different companies’ conversion rate, but some listed firms have been notifying shareholders with certificates to surrender them for conversion.

Eaagads, an agricultural firm listed on the NSE, gave shareholders notice to have their shares dematerialised when it changed its articles of association at the firm’s annual general meeting in September last year.

“Pursuant to and subject to the Central Depository Act 2000 title to immobilised and dematerialised shares will be evidenced otherwise than by a certificate and title to such shares shall be transferred by means of a book entry transfer in accordance with the provisions of the Central Depository Act,” said Eaagads in a statement following its AGM.

CDSC says that having all shares converted into electronic accounts will also eliminate chances of loss or damage to the paper certificates.

“With implementation of dematerialisation, risks involved with physical certificates will be eliminated and the time required to clear each transaction will be reduced tremendously,” said Ms Mambo

The move is also expected to result in an increase in the number of registered investors beyond the current number of close to two million Central Depository System (CDS) accounts at the bourse. Data from the CDSC shows that as at April 2013 there were 1,988,695 CDS accounts.

e-digit returns

Growth in the number of CDS accounts has flattened despite increased trading activity at the bourse. At the end of 2012 there were 1,981,958 CDS accounts, a marginal 1.1 per cent rise from 1,960,771 registered accounts in 2011.

The Nairobi Securities Exchange (NSE) 20-Share Index over the same time recorded double-digit returns for investors. The benchmark that tracks changes in prices of a select group of 20 listed firms – closed the year 2012 at 4,133.02 points, a 28.95 per cent increase from its opening level of 3,205.02 points