THE CENTRAL

DEPOSITORY AND
SETTLEMENT
CORPORATION LIMITED
GROUP ONE PRESENTATION

Anthony Kimani - 097000, Azizah Timimi - 100599,

Peejay Gathaiya - 101454, Saada Araru - 101445
- It’s a limited liability company approved by the CMA to provide automated clearing,
delivery and settlement facilities in respect of transactions carried out at NSE as well as
holding of listed and non listed securities including other documents of title on behalf
of investors.
- Was incorporated on 23rd March 1999 and formally started operations on 10th
November 2004.
- Provides a centralised system for the transfer and registration of securities in
electronic format without the necessity of physical certificates.
- Central Depository System (CDS) - Computer system operated by the CDSC that
facilitates holdings of shares in electronic accounts, opened by shareholders and
manages the process of transferring shares traded at the Stock Exchange.
- The CDS is similar to a bank
- Establish a Central Depository System (“CDS”) to automate the delivery, clearing and
settlement functions thereby increasing efficiency in the market.
- To reduce and if possible eliminate systemic and other risks inherent in a manually
operated Capital Market.
- Upgrade the delivery, clearing and settlement functions in line with international
standards.
- Achieve electronic straight through processing of transactions so as to eliminate
physical certificated processes to reduce settlement and market risk.
- Immobilize all listed securities in order to improve liquidity and turnover to simplify
the settlement process in the market.
- Improve and enhance the trading, delivery, registration and settlement system of the
capital market.
- Improve transparency, minimizing fraud.
- To improve the timeliness of the communication between issuers and investors in
order to reduce delays in receiving dividends and rights.
1. Securities Lending and Borrowing - This is the temporary transfer of securities
(shares) from one party (the lender) to another ( the borrower) at an agreed
lending/borrowing fee, with a formal agreement to return the securities either
on-demand or at a future pre-agreed date.
2. Investor Services - The CDS account boosts investor confidence by ensuring that
you are aware of the transactions that happen in your CDS account whenever they
occur.
3. Depository Services
● Securities Accounts
● Deposits
● Pledges and Releases
● Transfers
4. Clearing and Settlement Services
● Clearing - Work out what members are due to deliver and what members are due
to receive on the settlement date
● Settlement - Two way process that involves transfer of funds and securities on the
settlement date
5. Issuers Services - Issuers of capital whose securities are converted from physical
to electronic securities play a significant role. The physical securities are converted into
electronic book entry securities only after proper verification and approval by these
issuers. This process eliminates the problem of fake certificates as securities are
thoroughly checked by the issuers before executing deposit of securities transaction in
CDS.
- The concept of forming a Central Depository was first thought of in 1995. After a draft bill
was tabled in Parliament 2 years later, it culminated with the passing of the Central
Depositories Act of 2000 and the Central Depository and Settlement Corporation Limited
was incorporated. A Sri Lankan firm, Millennium Information Technology, was tasked
with providing a Central Depository System in 2002, with operations beginning officially
in 2004.

- By 2005, full DVP settlement for all companies listed in the Nairobi Stock Exchange was
attained. (Delivery versus Payment is a settlement method whereby transfer of securities
only occurs after a payment has been made).
- After KenGen’s IPO in 2006, there was a marked increase in the number of CDS accounts
opened due to the increased interest after such a landmark event. Another surge in CDS
accounts was after Safaricom’s IPO, whereby the number of CDS accounts doubled. At the
time, the CDSC’s goal was to settle trades in no more than 4 days, which they achieved.
Part of this is attributed to the introduction of the Automated Trading System in 2006.

- In 2008, the CDSC rolled out an SMS service that provides account holders access to their
accounts at any time. Thus, they are always aware of the state of their shares and
transactions in real time. The purpose of this service was to increase efficiency.
- Following this step, between 2012 and 2014 shares of all firms listed in the NSC and
corporate bonds were converted into electronic form. This has enabled the CDSC to;
provide even more efficiency in its services, be more affordable in its service provision
and end issues associated with loss of certificates as they are now electronic.

- 2015 saw the CDSC introduce settlement through the Central Bank of Kenya, a model
that reduces the risks involved in settling transactions with money from other banks.
The CBK has a Real Time Gross Settlement System (RTGS) to ensure transactions are
risk free.
The CDSC Registrars Ltd was incorporated in 2009 as a subsidiary owned by the CDSC. It is a
company that provides registry, capital raising and software as service solutions. A sister
company was incorporated in Rwanda a year later. In 2014, CDSC Registrars was appointed as
the official NSC IPO registrar and processing agent. Other companies are still free to contract
CDSC Registrars to provided registry and software services for their businesses, such as UAP
Insurance.
 LEGAL FRAMEWORK OF THE CDSC

1. Central Depositories Act

- This Act lays down the legal and regulatory framework upon which the
establishment and operations of the CDSC are anchored
- The CDSC is under the authority of the Capital Markets Authority as per Section 3
of the Central Depositories Act
- Section 5 of the Act provides the Capital Markets Authority with the powers to
grant a licence to any company wishing to establish a central depository once it
achieves certain requirements such as maintaining a certain minimum paid up
capital as prescribed by the CMA
- The Act also requires the CDSC to come up with CDS rules to ensure orderliness,
efficiency and security in its operations
- The CDA under Section 60A also requires the CDSC to set up a guarantee fund for
settlement of trade through the central depository
 LEGAL FRAMEWORK OF THE CDSC ii
2. Central Depository Rules
- These are rules made in line with Section 4 of the Central Depositories Act with
the aim of ensuring efficiency, orderliness and security in the transactions of the
CDSC
- These rules cover everything from the appointment of Central Depository
Agents and the rules surrounding them
3. Securities and Borrowing Rules
4. Guarantee Funds Rules
5. Central Depository Operation Procedures
6. Guarantee Fund Procedures
7. Dormancy Rules
8. Regulation of Central Depositories Rules
● The functions of the CDSC are highlighted in the Central Depositories Act, 2000.
● According to Section 2(1) of the Act, the Central Depository means a company
licensed by the Capital Markets Authority to:
1. Establish and operate a system for handling of securities where securities are
deposited and held in custody by or registered by a company or its nominee
company for depositors. These securities are effected by means of entries in
securities accounts without the physical delivery of certificates.
2. Establish and operate a system for central handling of securities which permits or
facilitates the settlement or registration of securities transactions or dealings in
securities without the physical delivery of certificates.
- The CDSC provides a system which eases the settlement and delivery of securities
through the modernization of the securities market.
● Section 5A(1) of the Act provides that the Central Depository shall make Central
Depository System Rules providing for the following;
a. deposit, registration or transfer of securities
b. settlement of transactions involving securities
 c. the proper regulation and efficient operation of the clearing facility which it operates
and its default process
d. the establishment of a settlement guarantee fund
e. the qualifications for appointment of central depository agents
f. the exclusion from participation as central depository agents of persons who are not
fit and proper and the default measures to take
g. the expulsion, suspension or disciplining of a central depository agent
● Appoint central depository agents to carry out one or more services provided by the Central
Depository in accordance with Section 9 of the CDA. These agents open and maintain
Securities Accounts.
● Section 8 (1) of the Act states the duties of the Central Depository. These duties are:

1. To establish and operate facilities for the handling of securities centrally.

2. Ensure these facilities provide fair, transparent and efficient depository,

clearing and settlement arrangements for securities deposited and any

transactions relating to securities cleared or settled through its facilities.

3. Ensure adequate measures to prevent and mitigate fraud or any other system

manipulation mechanisms.
● Section 10 of the CDA requires the Central Depository to ensure orderly dealings in
immobilised or dematerialised securities to achieve greater efficiency in the market.
- Immobilised securities - a security where the underlying physical certificates have been
deposited, and are held in a CDS account - physical certificate is still recognized as
evidence of ownership in this instance.
- Dematerialised securities - book entry/electronic security prescribed by the CDSC
whereby the underlying physical certificate is no longer prima facie evidence of
ownership under the Companies Act.
● The CDSC shall provide assistance to the CMA as is reasonably required for the performance
by the Authority of its functions and duties under the Act. Section 12(1). for example, when the
Authority requires the production of records.
● To establish different types of securities accounts for different classes of persons or
securities (Section 30(2) of the Central Depositories Act) and issue to all depositors
statements of account in respect of all book-entry securities being held custody of or
registered in the name of the company for the depositor. (Section 31(1))
● The Central Depository keeps records to show all transfer of securities, money received or
paid by the Central Depository, income received from other payments and all assets and
liabilities. (Section 32)
1. Each customer is to have a single or joint CDS accounts; cannot have a minor account.
2. Have to obtain a special CDS accounts specimen signature mandate card through any CBK
branch and ask the cashier for specimen signature mandate card.
3. Fill in the card accurately and go to the cashier where you will be asked to sign the card in
presence of a designated CBK officer or any Authorised Agent.
4. Personally submit the duly completed card with coloured passport sized photograph, ID
and the bank has to verify these documents.
5. FInally get two copies of your bankers from either a commercial bank or financial
institution. They must sign and stamp your CDS accounts specimen signature mandate
card, verifying your Bank account details.
PROS CONS

Investors Agency risk

Companies Lack of awareness

Intermediaries Risk of loss in transit

Capital Market Multiplicity of charges

Reluctance for trading