Investing in the NSE: Where to Start?

Written by Ali Abdi

‘Africa is rising’ is a phrase that has become synonymous with Africa these last few years. According to data from the IMF, the global economy is expected to grow by 3 percent while Africa’s is expected to grow by 4.4 percent in 2016 and 5 percent by 2017. The Kenyan economy, specifically, is expected to grow by 5.5 percent.

What does all this data mean for those wishing to invest in the Nairobi Securities Exchange (NSE)? The expected growth in the Kenyan economy signals that Kenya is a country ripe for investing. A good place to start investing in an economy is to invest in its securities exchange?

To invest in the NSE, one must first open a Central Depository Systems (CDS) account with a brokerage firm. The Central Depository System is a computer system operated by the Central Depository and Settlement Corporation (CDSC) that facilitates holdings of shares in electronic accounts, opened by shareholders and manages the process of transferring shares traded in the securities exchange.

In the past, investors in the NSE were issued with paper certificates whenever they purchased stocks. However, in 2012 the Capital Markets Authority (CMA) together with the NSE and CDSC began the process of converting all paper shares into electronically traded shares. This process is known as immobilization. Therefore, all investors who hold paper share certificates are required to immobilize their shares first if they wish to trade them.

Requirements for opening a CDS account vary from one brokerage firm to another though there are some basic documents that are requested by all brokers as stipulated by CMA. The ‘Know Your Client’ (KYC) principle is a stipulation that all brokers must receive certain documents before opening a CDS account for a client. This is necessary to prevent fraud and ensure accountability.

Should you decide to open such an account, kindly carry the following documents with you when you settle on a brokerage firm:

  • Recently taken colored passport size photograph
  • Original National Identification Card or a Passport
  • A copy of your PIN certificate
  • A copy of your utility bill
  • In the case of a company, an original certificate of incorporation.
  • Directors of a company will need to provide their National Identification Cards and passport size photographs

Kindly note that brokerage firms may request for more documents.  Although this may look like a tedious process, it is necessary and done with the investor in mind. Such stringent requirements have helped in curbing fraud and have increased investor confidence in the NSE.

Well then, Ready to invest? If you have decided that you are ready to invest in the NSE, then the next logical step is to choose a Central Depository Agent (CDA). This is either a Stockbroker, an Investment Bank or a Custodian Bank which has been authorized by CDSC to open accounts in CDS on behalf of investors. There are currently 23 licensed CDA’s in Kenya as noted on the NSE website. Which firm you choose depends on what is most convenient to you as an investor. Furthermore, should you be unhappy with your current broker, you are free to transfer your shares to another broker. The whole process takes an average of two to three weeks. Alternatively, investors are allowed to have CDS accounts with more than one brokerage firm. Your CDS account number will remain the same though your individual client code would vary from broker to broker. It is, however, advisable to hold a CDS account with one firm as this makes tracking of one’s investments much easier.

“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb.

Ultimately, the same can be said about investing.  Warren Buffet said ‘Never depend on a single income. Make investments to create a secondary source’. Hopefully, investing in the NSE will help you achieve this secondary income. Furthermore, Investing in the NSE has been made much simpler with the advancement of technology. Some brokerage firms have even adopted mobile trading platforms in a bid to make trading much easier for their clients. However, one should not invest blindly. For those with a complete lack of knowledge of the market, when choosing a broker, settle on one that offers advisory services. This will enable you to make more informed decisions on your investment.

About the author

Ali Abdi