Same day stock buy-and-sell starts in September

The Central Depository and Settlement Corporation (CDSC) is set to introduce same-day transaction in the equities market by the end of September, likely pushing up the traded volumes.

The corporation said it is currently installing a new system to allow investors to buy shares and then sell on the same day.

“We are improving our systems which will allow intraday settlements. We intend to go live by quarter three of this year,” said CDSC chief executive Rose Mambo.

Currently transactions are settled in a total of four working days.

Fast conclusion of transactions will enable investors to trade on margins gained during the day improving liquidity of shares in the market. Market liquidity is a huge attraction to foreign investors who put huge emphasis on the ease of entering and exiting a counter.

Equity turnover at Nairobi Securities Exchange (NSE) rose by 38.5 per cent last year to Sh215 billion from Sh155 billion posted in 2013.
Increased trading also increases commission revenues earned by stockbrokers.

This comes as CDSC has moved the cash settlement process to Central Bank of Kenya Real Time Gross Settlement (RTGS) system.

Previously, the cash settlement for securities transactions was effected through four commercial banks appointed as settlement banks by the CDSC.

READ: Nairobi bourse shifts cash settlements to CBK

The four are CFC Stanbic, Equity, Barclays and Co-operative. The banks did not receive any commissions from the corporation but benefited from credit services extended to stockbrokers when they did not have sufficient cash in their accounts to settle the transactions affecting their customers.

Financial centre

Paul Muthaura, Capital Markets Authority (CMA) Acting Chief Executive, noted the use of the RTGS system was a substantial step in addressing settlement risk.

Settlement of accounts by Central Bank gives finality to the transactions as there is no probability of default unlike in the previous arrangement where challenges in any of the four appointed banks could lead to failure of settlement.

CBK will settle with brokers’ banks who in turn will settle with their clients.

“This moves Kenya a step closer to attaining the status of a regional and international financial centre as envisaged in the Vision 2030,” said Mr Muthaura.

In August last year the Central Bank introduced same-day settlements for Treasury bonds and bills. Settlement of Treasury bills and bonds is already done through the RTGS system.

Under the same-day transaction of government securities NSE relays information of trades in bonds and bills conducted every two hours to the Central Bank.

CBK being the custodian of all government securities moves the securities between the traders involved during the same day.