Share custodian seeks to increase transaction fees at bourse

By JACKSON OKOTH

It will soon cost more for stockbrokers, investment banks or investors to transact business at the Nairobi Stock Exchange (NSE).

This follows a proposal by the Central Depository and Settlement Corporation (CDSC), to review its fee structure and introduce some new charges. The Capital Markets Authority (CMA) is expected to approve the new fees adjustment requests from the CDSC once it receives feedback from the public.

The CDSC proposes to double the levy on each transaction from 0.06 per cent to 0.12per cent of the value traded.

A depository levy is charged to listed companies on the basis of the number of transactions per year but subject to a cap. Currently, the CDSC is paid a transaction levy of 0.06 per cent and 0.002per cent of the value of equity and debt transactions in the secondary market respectively. CDSC also collects levies from pledges, releases and foreclosures.

"Equity turnover and volumes traded at the NSE is still unsatisfactory. A critical institution such as the CDSC needs some fresh capital to invest in new trading platforms and technology systems," said Amish Gupta, Associate Director, Standard Investment Bank.

Falling volumes

CDSC’s move to review its fees structure is happening when its functions remain susceptible to activity at the NSE.

Figures indicate that while the NSE 20 share index closed at 3962.79 points on July 4, it fell to 3,744.6 points as in August 4, 2011. Daily turnover within this on month period also declined from $4.2 million to $ 3.8 million.

A fall in volumes and activity at the NSE has led to retail investors fleeing the bear conditions, a situation made worse by ever rising rates of inflation, which has eroded household incomes.

Although it now takes only three days for investors either buying or selling securities at the bourse to get their shares or cash, this development appears not to have excited the market. Previously, it took five days for a transaction at the NSE to be completed.

Although systems have been improving at the NSE, the platforms here are nowhere near that of commercial banks that are able to perform e-trading using platforms at the Central Bank of Kenya.

While platforms at the bourse have been improving, there is a feeling among investment bankers and stock brokers that the NSE is still undeveloped.

"We need more innovative solutions and quality services for players in the debt and equity markets. Our ICT and trading systems are still undeveloped," said Gupta.

Fees and charges

The shortened settlement cycle at the NSE is designed to increase the level of liquidity in the market, benefiting issuers and investors. The NSE began operating a T+5 (five-day period) settlement cycle in 2004, before moving to the T+4 in 2008 and now T+3.

A plan by the CDSC to increase its fees and charges is coming at a time when activity at the NSE is down.

The market has been struggling to restore investor confidence, which has been waning. Up until now, four stockbrokerage firms have closed shop after suffering liquidity problems.