About 1.4 million accounts have been declared dormant out of the 1.6 million.
Dormancy was to be effected on January 1, 2019 on all accounts which had no activity for a continuous period of 24 months up to December 31, 2018.
Following consultations with other market players, however, the CDSC gave an additional 60 days grace period to ensure that investors were adequately sensitised and prepared for the application of the dormancy rules.
Nearly 90 percent of the 1.6 million share accounts at the Central Depository and Settlement Corporation (CDSC) have not been actively trading in the past two years, the firm has disclosed.
The CDSC reviewed the accounts at the end of March as it moved to implement the Dormant Account (Rules) Guidelines that were approved by the Capital Markets Authority (CMA) in April 2018.
“Dormancy was affected on March 1, with approximately 1.4 million accounts declared dormant out of the 1.6 million. Subsequently dormancy has been marked on inactive accounts at the end of every month,” said CDSC chief executive Rose Mambo.
“A large number of accounts that remain marked “dormant” belong to long-term retail investors and institutions.”
She, however, added that the depository has been receiving an average 2,300 requests monthly to lift dormancy on accounts.
Dormancy was to be effected on January 1, 2019 on all accounts which had no activity for a continuous period of 24 months up to December 31, 2018.
Following consultations with other market players, however, the CDSC gave an additional 60 days grace period to ensure that investors were adequately sensitised and prepared for the application of the dormancy rules.
A majority of the rarely used accounts were likely opened during the IPO rush in the mid to late 2000s, when companies such as Safaricom #ticker:SCOM, KenGen #ticker:KEGN, Kenya Re #ticker:KNRE and Co-operative Bank #ticker:COOP entered the market through large IPOs that pushed the number of investors at the bourse north of a million.
Being declared dormant does not mean the accounts are closed. Upon declaration of dormancy on an account, the CDSC sends a notification to the holder informing them of the declaration, and thereafter they are required to prove ownership with relevant documents when applying to reactivate their accounts.
The declaration of dormancy is intended to safeguard investors’ holdings in CDSC accounts from fraudsters, who have in the past traded shares without owners’ knowledge.
The revelation of the high number of inactive accounts is however also indicative of the level to which local investors have sat out trading during the recent bear run at the NSE.
Local investors account for 80 percent of the issued shares at the bourse, and their inactivity — foreigners regularly account for over 65 percent of traded activity — is hurting turnover at the bourse and in turn cutting the earnings of the NSE and market intermediaries.
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