Stock investors to pay Central Depository and Settlement Corporation (CDSC) Sh1.8bn annually for upkeep

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Investors at the Nairobi bourse have been hit with a new Sh100 monthly charge on stock market accounts that could see the Central Depository and Settlement Corporation collect nearly Sh1.8 billion a year.

The new charge, to be introduced in July, will add to the cost of investing on the Nairobi Securities Exchange (NSE) where trades can attract charges of up to 2% of the transaction value.

CDSC, which facilitates holdings of shares in electronic accounts opened by shareholders and manages the process of transferring shares traded at the stock exchange, declined to give the current number of trading accounts. The latest published annual report for 2020 shows CDSC had about 1.5 million accounts out of which 1.1 million were actively trading.

The charge will earn CDSC six times the revenue collected that year of Sh308 million which the platform made from charging transactions, deposits, registry fees, and bond levy.

The new charge on stock accounts comes at a time when the platform has suffered from a decline in revenues as a result of reduced trading at the NSE due to a slump in the market and mounting idle accounts.

“Dear investor, effective July 15, 2022, CDSC will introduce a CDS account maintenance fee of Sh100 per month payable annually,” CDSC said in a text message.

CDSC’s main revenues are earned from transaction levy upon completion of equity and bond transactions in the central depository system where it earned Sh238 million in 2020.

It charges each investor 0.08% of each transaction plus a 0.01% for the CDSC guarantee fund. Depository levy earned the platform Sh16.5 million, registry fees Sh4.7 million, bond levy Sh27.6 million, and others Sh20 million.

The new charge will help CDSC make money from active and idle accounts where the platform was not collecting any revenues from those who do not trade. Idle accounts, mostly held by individuals, stood at 385,411.

The upcoming charge will boost earnings and dividends for its principal shareholders, including Capital Markets Challenge Fund, Nairobi Securities Exchange, AKS Nominees, Capital Markets Investor Compensation Fund, and the Uganda Securities Exchange.

The settlement platform has been pumping in resources to expand the Kenyan market capacity to trade more than one position within a day, carry out securities lend and borrow, and improve efficiencies.

The new CDSC’s platform can now execute several trades within a day, a move that could earn retail investors profits on small price movements while opening a new revenue stream for the securities platform.

Day trading was supposed to earn CDSC 0.8% on each trade but the market has not attracted a lot of activity even after the Capital Markets Authority (CMA) set a 5% discount on the second leg of the transaction, which will be levied at 0.114% compared to normal trades which are levied at 0.12%.

The decision to start collecting the new fee, however, comes at a time when the market has dropped to a 20-month low on reduced foreign investor participation and capital outflows due to the Russia-Ukraine war that has intensified exits from emerging and frontier markets seen as riskier.

Major world economies, including the US and Europe, are also raising interest rates to fight inflation, reducing the appeal of investing in frontier markets.

Investors at the NSE lost Sh294 billion in a month following a sell-off by foreigners that has pulled down the value of the bourse to Sh2.176 trillion from 2.471 trillion on April 13.

The value of shares traded dropped to Sh33.76 billion in the first four months of the year from Sh41.61 billion a year earlier. Equities turnover has fallen 18.9% on the continued decline in foreign investor participation and appetite for shares at the bourse.

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