NSE investors in race to beat share certificate deadline
An investor looks at the digital electronic board at Nairobi Securities Exchange. Certificates will become invalid proof of ownership of shares at the NSE. FILE
What you need to know:
All companies listed at the NSE have until November to convert their paper share certificates into electronic accounts.
Phasing out of paper certificates is meant to increase efficiency, reduce transfer costs and increase transparency in trading.
Shareholders, who do not have a Central Depository System (CDS) account will be required to open the accounts to have their shares converted, which should see an increase in the number of account holders.
At least 12 NSE-listed companies have given notice to shareholders who still have paper share certificates to convert them into electronic accounts by the end of next month.
The certificates will after August 31 become invalid proof of ownership of shares in the Nairobi Securities Exchange (NSE) listed firms.
“Please take note that after dematerialisation (conversion into electronic accounts), all shares presented by share certificates will be substituted with book entries. Share certificates will therefore cease to be prima facie evidence of ownership once the shares are dematerialised,” said telecommunications firm Safaricom in one such notice.
Shareholders still holding paper certificates will also not be eligible for bonus issues beginning September 1.
All companies listed at the NSE have until November to convert their paper share certificates into electronic accounts.
The Central Depository and Settlement Corporation (CDSC), which acts as a custodian and clearing house for trading of shares, and the NSE, have jointly been pushing for elimination of paper certificates since 2004.
Last year, the two agreed to complete the conversion process by this November.
Phasing out of paper certificates is meant to increase efficiency, reduce transfer costs and increase transparency in trading.
“The paper-based system has had a variety of challenges like duplication of shares, loss and mutilation of certificates, signature mismatches and a time consuming transfer process. This had become a major contributor to rising arbitration cases and investor disputes,” said the CDSC in a statement issued last month.
Data from the CDSC shows that as at May 23, about 54.58 per cent of the shares listed on the NSE had been converted into electronic accounts.
Most of those still holding paper certificates are anchor shareholders and institutional investors who do not trade regularly.
November will also mark the end of paper certificates for future listings.
“No issuer shall, after the dematerialisation date, issue any certificate in respect of a dematerialised security,” says the Central Depositories Act, 2000.
The law also requires that companies give notice to shareholders through the newspapers for three consecutive weeks before the dematerialisation deadline.
“It (notice) shall be given in not less than three daily newspapers of national circulation, one of which shall be in Kiswahili and two in the English language, once a week for three consecutive weeks,” says the Act.
The CDSC had earlier said dematerialisation is to be carried in three tranches, which implies that the next dematerialisation deadlines will be in October and November this year.
Shareholders, who do not have a Central Depository System (CDS) account will be required to open the accounts to have their shares converted, which should see an increase in the number of account holders.
Data from the CDSC shows that as 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 despite activity in the bourse increasing over the same period.
Growth in the number of CDS accounts has flattened, despite increased trading activity at the bourse.
Dematerialisation is not expected to see an increase in the free-float or number of shares available for trading since most stocks are owned by institutional and anchor shareholders.
