The Stock Market is a financial market which deals in the exchange of shares of publicly quoted companies; government, corporate and municipal bonds; as well as other financial securities for money.
A Stock Exchange (also called a Securities Exchange or Bourse) is an organized platform where financial securities are traded. Financial securities are tradable financial assets.
The Nairobi Securities Exchange (NSE) is Kenya’s financial market platform that is organized for the purpose of buying and selling securities in the region.
How Does the NSE Work?
A stock exchange’s core function is to ensure fair and orderly trading, as well as to efficiently disseminate price information for the securities that trade on it. In order for those securities to trade publicly on a stock exchange, they must be listed. Listing on NSE can be done either by introduction or Initial Public Offer (IPO).
In order for one to trade on the NSE, you are required to:
- Open a Central Depository Systems Account (CDS Account). A CDS account is an electronic account that stores shares.
- Find a stockbroker or investment banker. This is because the purchase and selling of financial securities can only be done by authorized investment banks or stockbrokers.
Before you trade, ensure you do your due diligence and research on each investment opportunity before you commit your finances.
Benefits of the Nairobi Stock Exchange
- It promotes economic growth by encouraging people to save their money by investing in productive businesses. It serves as an alternative to depositing their money in the bank.
- The NSE promotes high standards of managing resources and accounting for companies that are publicly listed. This is because there is public disclosure of all the company’s financial statements.
- The NSE allows SMEs to access finance for growth and expansion. The stock market is an easy way to source for funds compared to traditional means.
Companies listed in the market fall in four main segments:
- Main Investment Market Segment (MAIMS): This segment is for companies with fully paid up share capital of KES. 50 million and net assets of KES. 100 million. The company must have declared a profit after tax in at least three of the previous five years. Listing fees are capped at KES. 1.5 million.
- Alternative Investment Market Segment (AIMS): This segment is designed to assist medium-sized companies that require access to capital and a public platform to continue growth. The company must have minimum authorized, issued and fully paid up shares of KES. 20 million and net assets of KES. 20 million before listing.
- Growth and Enterprise Market Segment (GEMS): This segment provides an opportunity for small and medium-sized companies to list within a regulatory environment designed specifically to meet their needs. They need to have a share capital of KES. 10 million with no minimum assets required. The company must provide audited accounts for the year prior to listing, but there is no requirement to be profitable. Listing fees are capped at KES. 250,000.
- Real Estate Investment Trusts (REITS): There are two types;
- Income REITS provide retail investors with exposure to Kenyas booming property market.
- Development REITs are restricted to professional investors with minimum parcel sizes of Kshs 5 million. They enable developers to access capital.
The movement of prices in the securities market is dependent on the supply and demand of shares. Factors such as the financial position of the company, performance and corporate action can also affect the balance of shares. The minimum amount of shares you can buy on the Stock Market is 100 shares.
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