CDSC seeks approval to charge stock accounts

Central Depository and Settlement Corporation CEO Nkoregamba Mwebesa. FILE PHOTO | NMG

By OTIATO GUGUYU

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The Central Depository and Settlement Corporation (CDSC) has made an application to the market regulator to begin charging stock account holders.

The Capital Markets Authority (CMA) said they have received the application from CDSC which will be followed by a 30-day public consultation before the fate of the charge can be decided.

CDSC which offers clearing and settlement services announced on May 17 that it would introduce a 100 monthly charge effective July 15.

The proposal was suspended the next day after an outcry, with fears that it will squeeze retail investors whose portfolios are small.

“They have come to us and indicated they will subject it to public participation for 30 days before they come back to us as the regulators to see if they will proceed,” CMA policy and strategy director Luke Ombara said.

CDSC has been forced to shelve the new charge that would see account holders pay Sh1,200 annually for fear it might have led to massive account closures.

The charge was supposed to be split between the settlement platform and brokers with CDSC getting Sh400 annually while brokers who would collect the charge would have kept Sh800.

CDSC insists the new charge would have only been imposed on active accounts that average about 60,000 annually which would have meant collecting Sh72 million that would eventually be split between the platform and brokers.

The mechanics of collecting the proposed fee has not been disclosed but it could be imposed on the first trade in a month.

CDSC had disclosed that some accounts were no longer actively participating in trade at the bourse.

The settlement platform reckons most of the accounts that came in through the bull market IPOs that were launched between 2006 and 2009 are no longer trading.

Retail investors who are the majority in the market have been dormant for a while with the CDSC saying nearly 97 percent of equities accounts used for trading at the NSE have lain idle in the past two years.

Investors said the new charge would lead to a mass exit at the NSE by traders who could not keep up with the levies at the same time barring newbies from taking part in the stock trade.

CDSC said it would engage with regulators and other stakeholders who aver that any decision on the matter will be made after engaging interested parties.

The new charge will increase the cost of investing at the bourse where trades can attract charges of up to two percent of the transaction value. The fee was proposed at a time when earnings of brokers and CDSC have dropped in the wake of a long-running bear market and reduced trades on the bourse.

Equity turnover has dropped steeply, coming in at Sh137 billion in 2021, the lowest since 2012. In the first half of this year, investors traded shares worth Sh54.2 billion, pointing to an even lower annual total compared to last year if the trend is maintained in the second half of the year.

It is this drop in traded turnover that has caused the biggest headache for players in the market whose revenue is derived from commissions charged on trades.

dguguyu@ke.nationmedia.com