Investors will soon have access to their Central Depository System accounts at the click of a button, through an online platform.
Stock market investors have previously relied on Central Depository System Corporation Ltd (CDSC) monthly statements sent via the post office to track the performance of their accounts.
However, the statements do not offer real time information of the accounts, creating a loophole for manipulation by rogue stockbrokers. This has left investors with option of paying the stock broker a visit.
Now CDSC wants to leverage on technology to enhance its mandate as a custodian of investors’ shares and at the same time give investors the power to scrutinise their accounts at their convenience.
The CDSC plans to invest Sh15 million in a new version of the Central Depository System, designed by Millennium Information Technologies (MIT) of Sri Lanka.
The same company enabled the country to implement the CDSC 2004 as well as migrate from the public outcry system to the current Automated Trading System (ATS) in September 2006.
CDSC, the computer system that facilitates holding of securities in electronic accounts and facilitate faster and easier processing of transactions for Nairobi Stock Exchange securities such as shares and bonds will be available in their website by the end of the year.
“The new system is web enabled, meaning investors can log onto a website to transact online, as well as monitor all the activities of the account.
This will especially be useful for investors in foreign countries as well as Kenyans in the Diaspora who will not have to rely on a third parties, for example, to buy shares,” said Rose Mambo, CDSC chief executive officer.
This comes at time when investors confidence has dwindled in the recent past following widespread fraud and collapse of several stock brokers with millions of investor funds in the past three years.
Retail investors have been at the mercy of stockbrokers, who in turn take advantage of the situation.
As it were the case with Francis Thuo, the first stock broking firm to go down and Nyaga, which was the largest firm to follow suit and others such as Discount Security which are under the capital market radar, investors complained that stockbrokers sold shares without authorisation.
In most cases, investors noticed the fraud when it was too late, through their statements or when they placed sales orders only to realise they have no shares.
According to Thomas Murray, a custody risk rating and advisory company specialising in the global securities services industry, the capital market infrastructures in Africa represent the most underdeveloped of all regions globally in terms their ability to support efficient clearing and settlement.
“However, markets that have implemented CSDs have benefited enormously from an increased level of confidence particularly among foreign investors, which has translated into significantly greater transaction,” said Mr Murray.
An African Alliance researcher said the move would increase transparency in the market and create a positive image.
A direct impact according to the researcher is an upsurge of new investors in the bourse and active participation of the daily trading since investors have access to the performance of their portfolio. Investors can therefore make informed and prompt decision on trading.
But the web based solution is not devoid of challenges.
“Massive investor education is paramount for the success of such an initiative. Security through cyber crimes will be a big threat,” said the African Alliance analyst.
However, this is not the first time the CDSC is utilising technology to tame rogue stockbrokers.
Mid last year, CDSC joined the bandwagon of the many companies seeking to provide their services through the mobile phone. Tafakari Hisa, a short messaging service, sms, alert notifies investors of any transactions within the accounts.
This is one of the ways investors have managed to track unauthorised movements, but the uptake of the service has been low, according to Ms Mambo. She told the Business Daily that only 20,000 investors have subscribed to the SMS alerts.