Investors Toolkit

www.nse.co.ke

Nairobi Securities Exchange

Investors Toolkit

Nairobi Securities Exchange

What is a Securities Market?

A Securities Market is a public market where trading of various
financial instruments such as company shares, bonds, derivatives,
real estate investment trusts etc. takes place.
The term Securities Market generally refers to an organized trading
platform that has an objective pricing mechanism that is free and fair
to all participants.

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What is the importance of the Securities Market to the

Economy?
It encourages a savings and investments culture, by providing an
avenue for idle money and savings in the Economy to be put into
productive use.

What is the Nairobi Securities Exchange?

The Nairobi Securities Exchange (NSE) is a securities market which

provides a platform for the buying and selling of shares of publicly
listed companies and bonds.

It promotes financial transparency amongst listed companies

by requiring companies to give periodic financial reports
of their performance

NSE is incorporated in Kenya as a company limited by shares and is

charged with the responsibility of developing the securities market
and regulating trading activities.

It provides the public with daily market reports to ensure that

investors know the worth of their assets at all times.

Our Vision
To be a leading securities exchange in Africa, with a global reach

Mission
To provide a world class trading facility

Our Core values

I.

Ethics

II.

Integrity

III.

Confidentiality

IV.

Innovation

V.

Excellence

It brings together borrowers and lenders of money at a low cost.

The investors become lenders and expect a financial reward
for their investment. The borrowers (issuers) borrow and promise
to pay the lenders a profit.

It provides shareholders with various financial solutions as shares

and bonds are accepted guarantees for Bank and co-operative
societies loans.

piece of the companys profit or losses.

Is a lender to a company.

What is a bond?

Expects a profit in form of an interest at a specific agreed date in

future.

A bond is a loan between a borrower and a lender. The borrower

promises to repay the initial money invested by the lender. The lender
lends and expects to make a profit. The profit from a bond is gained
in the form of interest that is usually paid quarterly or semi-annually
at a date in the future.

A bond is a very convenient asset to own;

Accepted guarantee for many types of loans by cooperatives
societies and banks;
A stable source of income;
A good way to manage money to meet specific needs.

What are the benefits of owning shares?

They may be used as a guarantee for borrowing loans from
cooperative societies and banks.

Our Products

A way of saving your money for the future.

Currently we trade in:

A relatively easy and quick asset to buy and sell.

2. Bonds

Invests to earn a reasonable return at low risk.

A watchdog of the borrowers activities.

A Shareholder
Is a lender and also an owner.

What are the benefits of buying bonds?

It enables the government, companies, cooperative societies and

other organizations to raise money to expand their businesses,
create employment and generally helping the economy to grow.

1. Shares

Does not vote or participate in the management of the company.

Buying at low prices and selling at high prices generates a profit.

A solution to increase financial activity and economic growth.

Expects a profit in form of a dividend, gain in share price, bonuses

and cheaper shares (through Rights Issues).
Attends Annual General Meetings, gives opinions about the
company and votes, thereby participating in the running of the
company.
Invests expecting the highest return possible.
Accepts risk as part of investing in any business.
A watchdog of the management and companys activities.
Has the opportunity to influence the a companys performance.

The Process of buying securities

The first step when buying securities (shares, bonds etc.) is to decide
what company to invest in. When selecting a company, one should
make sure that it is strong or growing. There are different methods by
which investors can select appropriate companies. These include:

Fundamental analysis;

What is a share?

What is the difference between a bondholder and a

shareholder?

This is a method in which you study the companys current

management and position in the market to make a decision.

A share is a piece of ownership of a company or enterprise. Buying a

share allows you to become an investor and thereby, an owner of a

A bondholder

Technical analysis;
This is a method which is based on statistical analysis such as graphs
and charts, in which you identify the companys trends and invest

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Nairobi Securities Exchange

accordingly.
After one decides what company to invest in, you need to select a
stockbroker or investment bank to use. The two are the only ones that
can make an order to buy or sell securities. They may be contacted
by mail, telephone, personal visits or regional agents and give their
buying or selling orders. When one gives a stockbroker or investment
bank an order, it is relayed to an ATS dealer. The ATS dealers do all the
actual buying and selling.

Opening a CDSC Account

What is the CDSC?
CDSC stands for Central Depository and Settlement Corporation.
CDSC is a company incorporated under the Companies Act and
approved to establish a central depository by the Capital Markets Act
in line with the Central Depository Act, 2000.

What is a CDSC Account?

This is an electronic account operated by the CDSC in which securities
are held in electronic accounts opened by shareholders/ bondholders.
It facilitates clearing and settlement of all financial instruments
traded through the Nairobi Securities Exchange (shares and bonds) in
a safer, faster and easier manner.

How do I open a CDS Account?

A CDSC account may be opened with any of the licensed Central
Depository Agents (CDA). A CDA is a Stockbroker, an Investment
Bank or a Custodian Bank who has been authorized by the CDSC to
open CDS accounts on their behalf.
You will complete and sign a CDS 1 Form to open and maintain a
securities account. You will also need to provide 2 recently taken
passport size photographs, your original National ID or passport. In the
case of a company, you need the original certificate of incorporation,
and if you are an organization registered in any other way you need

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the certificate of registration. Directors of a company will also need

to provide their national ID Cards and passport size photographs. The
account is deemed open unless otherwise advised.
Please note the Know your Client (KYC) requirements include your
signature of the CDS 1 Forms before your Central Depository Agent.

What do I get when I open an account?

When you open your CDS account you will receive a CDS account
number together with a duplicate copy of the account opening form
for your records. You will also agree a secret question and answer
with your CDA for purposes of identifying you. Please keep the
question and answer confidential.

What are the benefits of having a CDS Account?

1. Enables an investor to buy and trade in securities;
2. Immediate transfer of securities;
3. Elimination of risks associated with physical certificates such as
bad delivery, fake certificates among others;
4. Reduction in paperwork involved in transfer of securities;
5. Reduction of transaction costs;
6. Nomination facility;
7. An investors change of address is communicated to all companies
in which he or she holds securities without having to send multiple
notices;
8. Transmission of securities is done by the CDA eliminating the
need for correspondence with the companies in which investor
holds securities;
9. Provides a convenient method of consolidation of CDA accounts;
10. Ability to hold investments in equity, debt instruments and
Government securities in a single account;
11. Automatic credit of shares into securities account, where there
has been a share split or a consolidation

Qualities of a good share

Regular and generous dividends

The company is managed productively, transparently and is
accountable to shareholders
No wastage in the use of resources
Company respects its shareholders and their opinions
Easy to buy and sell quickly in the market
Company abides by all rules, regulations and laws

Stockbrokerage commission shall be limited to Kshs. 100 for odd

lot transactions up to Kshs 3000 excluding statutory fees. Odd lot
transactions in excess of Kshs. 3000 shall be charged a commission at
the prescribed rate of 1.8% excluding statutory fees.
Costs to Investors - Transaction Levy Breakdown (% of the value of
Corporate and Treasury Bond transactions)
The only commission levied on Bonds is the Stockbrokerage
commission: Minimum amount is Kshs. 500.00.
A 0.0625% commission of the value of the transaction is chargeable
on amounts up to Kshs. 50.0 million. Commissions for amounts above
Kshs. 50.0 million are fully negotiable.

Market Commission
Costs to Investors - Transaction Levy Breakdown (% of the value of
an Equity transaction)
NSE Transaction Levy

Benefits of investing in securities

1. Income

0.12%

0.12%

0.01%

0.01%

NSE Investor Compensation Fund

2. Capital Gains

0.12%

0.12%

0.01%

0.01%

CMA Investor Compensation Fund

Long term and even short term price gains on securities add value
to investments. Bonuses and Rights Issues also boost the value of
investment.

CMA Transaction Levy

This comes in form of Dividends from shares or Interest on Bonds.

3. Tax Advantages
0.06%

0.06%

CDSC Transaction Levy

1.68%

1.78%

Stockbroker Commission

2.00%

2.10%

Note: Although commissions are fully negotiable, industry practice

is that the highest commission chargeable is 1.78%, applicable
to amounts up to Kshs. 100,000.00; above Kshs. 100,000.00,
commissions are fully negotiable, subject to a maximum of 1.5%.

Withholding tax on dividends is low- at 5% compared to

alternative investments such as savings accounts which attract a
tax of 15%..

4. Collateral
Share and bond certificates may be used as collateral to secure
loans and other assets.

5. Confidentiality
Securities are a discreet asset to hold due to the intangible and
invisible nature of financial securities.

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Nairobi Securities Exchange

6. Flexibility

Shares are traded in units that are relatively affordable by individual

savers and investors. Bonds are also fairly affordable with a
minimum of Kshs 50,000 when compared to alternative
investments such as real estate.

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NSE Role
NSE Does

NSE Does Not

List securities after their approval by the

Capital Markets Authority.

Award securities market licenses to

Securities Markets licensees such as
Central Depositories, Investment Banks,
Stockbrokers, Fund Managers, Investment
Advisors, Credit Rating Agencies, Venture
Capital Funds, Collective Investment Schemes
and ESOPS.

7. Convenience

Investing in securities does not require individual engagement of

an investor to generate a return as opposed to other businesses
that need the personal presence and involvement of the
entrepreneur to yield a return.

8. Liquidity
Shares and bonds are easily transferrable at low transaction cost as
compared to other assets such as real estate. An investor is
therefore able to get in or out at his convenience.

9. Participating in Company Decisions

Shareholders have the right to decide how their business is

run. It is generally accepted that publicly listed companies are
more rigorously managed and regulated than other private or sole
proprietary businesses.

Provide the trading function/ Platform

of the market through the Automated
Trading System.

Investigate and prosecute stakeholders/

licensees for breaches of the Laws or rules
that govern them.

Conduct real-time surveillance to detect

market manipulation, insider trading,
breaches of continuous disclosure and
other illegal activities that impacts on
the trading.

Maintain the clients accounts database.

Analysise and give subjective

commentaries on information submitted.

Securities Market Stakeholders / Operators defined

Stockbroker

Investment Advisers / Fund Managers

A stockbroker is a market professional who buys and sells securities

on behalf of clients at a Stock Market in return for a brokerage
commission.

An investment adviser and/ or a fund manager are market professionals

who promulgate analysis and research on capital markets securities and
advise investors on such securities at a commission. They also manage
portfolios of securities on behalf of clients pursuant to a contract.

Stock dealer
A stock dealer is a person who carries on the business of buying,
selling, dealing, trading, underwriting or retailing securities as a
principal (i.e. on his or her own behalf).

financial instruments or documents of title to assets registered in

the name of local investors, East African investors, foreign investors
or in the name of an investment portfolio. Every investment adviser
and fund manager that manages discretionary funds shall appoint a
custodian to hold the assets of the fund.

Investment Banks

Venture Capital Funds

These are non-deposit taking institutions that advise on offers of

securities to the public or a section of the public, corporate financial
restructuring, takeovers, mergers, privatization of companies,
underwriting of securities etc. They can also engage in the business
of a stockbroker, a dealer, and fund manager of collective investment
schemes and provider of contractual portfolio management services.

These are companies incorporated for purposes of providing risk

capital to small and medium sized business which are new and have
high growth potential, whereby not less than 80% of the funds
so invested consist of equity or quasi equity investment in eligible
enterprises.

Credit Rating Agencies

Promote good governance and

reporting practices, including through its Guarantee a return on investing in the
different financial instruments traded in its
participation in the Financial Reporting
platform.
( FIRE) Awards.
Facilitate the dissemination of
information on the market to the
investors; these include pricelists,
material announcements and other
substantial shareholders notices.

on the Fixed Income Securities Market Segment at a stock exchange.

Authorized Securities Dealers are also required to act as market
makers and dealers in this market segment; they facilitate deepening
of the fixed income securities market; enhance trading and liquidity in
the fixed income securities market; and minimize counter party risk.

Authorized Securities Dealers

This is a bank licensed under the Banking Act or a financial institution
approved by the Authority to deal in fixed-income securities listed

A Credit Rating Agent is a professional whose role is to give an

objective and independent opinion on the general creditworthiness
of an issuer of a debt instrument, and its ability to meet its obligations
in a timely manner over the life of the financial instrument based
on relevant risk factors including the ability of the issuer to generate
cash in the future.

Collective Investment Schemes

These are specialized market players licensed to mobilize savings in
financial assets and to enhance access to capital markets by small
investors. They include Mutual Funds, Unit Trusts, Investment Trusts
and other forms of Specialized Collective Investment Schemes.
Collective Investment Schemes offer a unique opportunity to
investors in terms of professional management, economies of scale
and diversification of portfolio and risk.

Custodians
These are banks licensed under the Banking Act or financial institutions
approved by the Authority to hold in custody funds, securities,

Beginners Steps toward Investing in the Securities

Market
Conduct Financial self-examination
Analyze your financial objectives, your income sources, constraints
and risk tolerance. Ask whether you are financially ready to invest
in the capital markets. It is not advisable for beginners to borrow to
invest in the capital markets. In a volatile market, you could lose the
borrowed money and you will still have to pay it back.

Deal only with licensed Entities

Identify your financial investment advisor and open an account
with them. Your investment advisor, be they an Investment Bank, a
Stockbroker or any other firm advising you on investment, must be a
licensee of the Capital Markets Authority (CMA).

Open a Central Depository System (CDS) Account

A Central Depository System (CDS) is a computer system operated
by Central Depository and Settlement Corporation (CDSC), which
facilitates holding of securities in electronic accounts opened by
shareholders. It manages clearing and settlement of all financial

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instruments traded through the Nairobi Securities Exchange (including

shares and bonds) in a safer, faster and easier manner.

Take Control of your Trading Account

Ensure that your stockbroker/ Investment Bank does not trade on
your account without your knowledge.

It is important to make sure that you are receiving all documents

relevant to your transactions including; receipts, transaction
statements, purchase and sales contracts, CDS account statements,
etc.

Your trading account will enable you to find out what transactions
have been made by the stockbroker or Investment Bank on your
behalf.

To confirm the status of your account, obtain a statement from

your stockbroker/ Investment Bank or CDSC. You can also register
for a CDSC SMS service by sending the word Register to 2372 to
keep you updated on movement in your account.

Ensure you take full responsibility of your trading account at your

Investment Bank or Stockbroker. These accounts are for your
exclusive use. Never let anyone, including your dealer, trade in your
account without your knowledge.

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Nairobi Securities Exchange

Nairobi Securities Exchange Limited

The Exchange
55 Westlands Road

A. P.O. Box 43633 - 00100 Nairobi, Kenya

T. +254 (020) 2831000
C. +254 724 253 783

F. +254 (020) 2224200

E. info@nse.co.ke
W. www.nse.co.ke