Share certificates to be phased out in NSE reforms
What you need to know:
Holders of certificates, including anchor shareholders, cannot take part in bonus and rights issues or share sale and splits until they convert.
Share certificate holders will have to surrender them before the end of November as the Nairobi Securities Exchange (NSE) goes for a total phase-out of paper, which represent 48 billion shares.
The investors, who account for 64 per cent of the total shares issued at the NSE, will be required to convert all securities into electronic form.
That means holders of certificates, including anchor shareholders, cannot take part in bonus and rights issues or share sale and splits until they convert.
The NSE and the custodian of electronic records, the Central Depository and Settlement Corporation (CDSC), are implementing the project.
The move — known as dematerialisation — started in 2004 after the CDSC was formed and has allowed withdrawal of thousands of certificates through a process called immobilisation.
A joint statement from CDSC and NSE said: “The proposed date for the dematerialisation is November 30, 2012… the impact will be that with effect from the date, share certificates shall no longer be recognised as prima facie evidence of shares — this will be replaced with the electronic record at the central depository.”
Currently, investors can be issued with a physical certificate instead of an electronic number as long as they do not intend to trade at the NSE. Bond trading at the bourse is already fully dematerialised.
As at the end of June this year, the 60 listed equities had a total of 74.92 billion issued shares of which 27.17 billion were in electronic form and 47.74 billion in certificates.
Holding companies possess the bulk of the paper with data showing that as at the end of June, this translated into 43.91 billion shares or 92 per cent of the shares in certificates. Only 3.83 billion (eight per cent) was held by retail investors.
During a stakeholders forum early this month, Rose Mambo, chief executive officer CDSC, said that when the company was incorporated in 1999, the intention was to introduce electronic securities in the market and do away with the inefficiencies of paper-based trading. This, she said, would enhance the safety and security.
“It will be much more efficient because if you have a paper certificate and want to trade, you will have to convert to electronic form, which may take days and you may end up losing out on an opportunity,” said Alistair Gould, head of trading at Old Mutual Securities.
Mr Gould said that currently, investors cannot trade stock that is in paper form and from a safekeeping stand point, custodian banks can also hold shares that are in electronic form.
According to a statement from the meeting by the East Africa Exchanges Association, Kenya’s central depository began consultations with the industry on the move in July this year and dematerialisation rules are awaiting approval from the Capital Markets Authority.
CDSC said the process would eliminate risks and costs involved in physical certificates and reduce the time taken to clear each transaction.
Certificates have had a number of challenges, like mutilation and loss, duplication, signature mismatches and transfer problems.
The Uganda Securities Exchange implemented the electronic system in 2010 and at the beginning of this month, Crested Stocks and Securities in Uganda warned that hundreds of investors from Kenya who have not opened electronic share accounts in Uganda would not receive bonus stock from Stanbic Bank (Uganda) until their virtual accounts are activated.
In 2004, the CDSC started operations in a phased approach where listed companies were divided into four groups. By February the following year, all securities were eligible for immobilisation.
The total number of central depository accounts as at the end of June stood at 1.95 million. There are 31 billion free-float shares (available for trading) at the NSE of which 80.95 per cent are immobilised.
According to the NSE, as at the end of last year, the number of shares deposited into electronic accounts had increased to 25.1 billion from 21.5 billion in 2010.
The value of shares in electronic form stood at Sh400.7 billion, accounting for 46.16 per cent of the total market capitalisation, up from 36 per cent the previous year.
Job Kihumba, an executive director at Standard Investment Bank, told the Business Daily that most of the shares that are still in paper form could be of high value and held by parent companies.
Mr Kihumba said that with all shares in electronic form, trading will be made easier.
