NIC Securities
1. What is a stock market?
A stock market is a mechanism through which company’s shares are bought and sold. It is a public market. It is used for the trading of company stocks and securities at an agreed price.
2. What are the various types of financial markets?
The financial markets can broadly be divided into money and capital market.
3. What is a primary market?
In the primary market, securities are offered to public for subscription for the purpose of raising capital or funds.
4. What is a Secondary Market?
Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on a Securities Exchange. Trading is done in the secondary market. Secondary markets consist of equity markets and debt/fixed income markets.
For the investor or shareholder, the secondary market provides an efficient price discovery mechanism and liquidity for trading of securities. For the management of the company, Secondary equity markets serve as an efficient valuation, monitoring and control tool—by providing value-enhancing control mechanisms, encouraging transparency through disclosure and regulatory oversight, encouraging incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.
5. What is the difference between the primary market and the secondary market?
In the primary market funds go from the investor to the issuer i.e. that securities are offered to public for subscription for the purpose of raising capital or funds.
In the Secondary market, funds and securities change hands between investors i.e. This is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While securities exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market where a stockbroker runs a desk and trading is based on the “willing buyer, willing seller) principle.
6. What are the products dealt/available in the secondary markets?
The following are the main financial products/instruments dealt in the secondary market:
7. Who is a Stockbroker?
A Stockbroker is a member of a recognized securities exchange e.g. the NSE, who is permitted to trade on the Automated Trading System (ATS) of a securities exchange. He is enrolled as a member with the concerned exchange and regulated by an authority like the Capital Markets Authority (CMA) in Kenya.
8. What is the role of Stockbrokers in the Secondary Market
Stockbrokers facilitate trading on the Automated Trading System (ATS) of a securities exchange on behalf of the clients.
9. Whom should I contact for my transactions?
You can contact a Stockbroker such as NIC Securities Ltd who are members of the Nairobi Securities Exchange (NSE) and regulated by an authority like the Capital Markets Authority (CMA) to facilitate your carrying out your transactions pertaining to the capital market. NIC Securities contacts are as follows Tel: 020-2888444, 071104100 and 0732141000:
10. What is ATS?
ATS refers to Automated Trading System: this is a wide area network based trading system that replaced the open outcry system of trading at the securities exchange. It is more efficient and allows trading to be done from remote locations rather than the traditional trading floor. All trades are matched electronically which increases price discovery efficiency and transparency.
11. What is CDSC?
CDSC stands for Central Depository and Settlement Corporation. Investors’ securities are stored electronically at CDSC. Automated settlement eliminated the use of certificates in trading at the Nairobi Securities Exchange which also subsequently reduced the settlement period to the current T+3.
12.How do I open a CDS/NIC Securities Account?
You complete and sign the CDSC1 and NIC Securities account opening forms, and General Terms and Conditions. The following Know Your Customer (KYC) documentation is also required;
For individual or joint accounts
For corporations;
13. What are the responsibilities of a Stockbroker?
A Stockbroker manages client’s portfolios. This includes the collection of company stocks and shares that they own. Stockbrokers maintain contact with the client, research companies and markets and buy and sell stocks and shares on behalf of the client. The job demands integrity of character as a Stockbroker needs to deal with his client’s money and finances.
14. How do I know if the Stockbroker is registered?
All registered Stockbrokers have an up to date certificate issued by Capital Markets Authority (CMA).
15 .Am I required to sign any agreement with NIC Securities before transacting?
Yes. You are required to sign the “NIC Securities – Client agreement” for the purpose of engaging a NIC Securities to execute trades on your behalf from time to time. The Agreement contains clauses defining the rights and responsibilities of the Client vis-à-vis NIC Securities. The documents prescribed are model formats. The securities exchanges/ NIC Securities may incorporate any additional clauses in these documents provided these are not in conflict with any of the clauses in the model document, as also the Rules, Regulations, Articles, Byelaws, circulars, directives and guidelines.
16. What is the NIC Securities –Client Agreement Form?
This is an agreement entered between a client and NIC Securities in the presence of a witness where, the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through NIC Securities after being satisfied of NIC Securities capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of NIC Securities liability for the business to be conducted.
17. What kind of details do I have to provide in NIC Securities Client Registration form?
In case of individual client registration, you have to broadly provide following information:
Requirements for individuals & joint Accounts
18. What other information is required for Organizations (Limited Company/Society/Partnerships/Sole Proprietorship)
Sole Proprietorship
Partnership
Limited Company
Club/ Society/ Association
In order to facilitate maintaining database of their clients and to strengthen the Know Your Client (KYC) norms; NIC Securities assigns unique client codes linked to the client account details of the respective client which will act as an exclusive identification for the client.
19. How do I place my orders with NIC Securities?
You can either go to NIC Securities office or place an order via the internet (Internet/emailIndemnity is required for this). Investors will also have credentials to trade directly on the NIC Securities online trading and the mobile trading platforms.
20.How do I know whether my order has been placed?
The ATS assigns a Unique Order Code Number to each transaction, which is generated and sent by NIC Securities to the client and once the order is executed, this order code number is printed on the contract note.
NIC Securities also maintains the record of the time at which the client has placed the order and reflects the same in the contract note along with the time of execution of the order.
21. What documents should be obtained from the Stockbroker on execution of a trade?
NIC Securities sends the client a statement indicating the execution of the trade. Email statements are sent to clients who have signed an email indemnity.
22. What details are contained in the contract note issued by NIC Securities?
A Stockbroker has to issue a contract note to clients for all transactions in the form specified by the securities exchange. The contract note inter-alia should have following:
Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid.
Contract note provides for the recourse to the system of arbitrators for settlement of disputes arising out of transactions. Only the Stockbroker can issue contract notes.
23. What does NIC Securities charge per transaction?
The Stockbrokerage charges by NIC Securities has been specified in the Nairobi Securities Exchange Regulations as follows.
24. What is a Transaction Settlement Period?
A Transaction Settlement Period is a period where the funds and securities pertaining to a transaction are settled. For example, trades for the period Monday to Friday are settled together. This is a period of T+3 i.e. 3 working days from the transaction date
Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like banking holidays, weekends etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.
25. In case of purchase of shares, when do I make payment to NIC Securities?
The payment for the shares purchased is required to be done prior to making the order for purchase.
26. In case of sale of shares, when should the shares be given to the Stockbroker?
All shares to be traded should be immobilized and held in the CDSC database to enable trading. Shares in certificate form must be immobilized to enable trading at the NSE.
27. How long does it take to receive my money for a sale transaction and my shares for a buy transaction?
T+3 is the standard
28. Is there any provision where I can get faster delivery of shares in my account?
No
29. What happens if I do not get my money or shares on the due date?
In case a Stockbroker fails to deliver the securities or make your payment on time, or if you have complaint against conduct of the Stockbroker, you can file a complaint with the respective securities exchange. The exchange is required to resolve all the complaints. To resolve the dispute, the complainant can also resort to arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Securities Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to CMA. Your complaint would be followed up with the exchanges for expeditious redress.
30. What is CMA Investor Compensation Fund (ICF)?
Investor Compensation Fund is the fund set up by the CMA and NSE to meet the legitimate investment claims of the clients of the defaulting members that are not of speculative nature. CMA has prescribed guidelines for utilization of ICF at the NSE. The CMA compensation limit is currently Kes 50,000. The ICF will get a stake of not less than 20% of the total shareholding of the NSE after the demutualization of the exchange, ICF represents a way to compensate investors who have lost money due to rogue stock brokerage or any other misdemeanor in the system provided that the amount of compensation available against a single claim of an investor arising out of default by a member Stockbroker of a Securities Exchange shall not be more than Kes 50,000/-.
31. What are the main things an investor should be aware of while dealing with a Stockbroker/Agent
Good understanding of investment opportunities alone may not help the investor in the securities market to trade. It is also important that the investor understands the process of investing, such as finding an appropriate Stockbroker, handling buying and selling of securities and maintaining records.
32. Before choosing a Stockbroker/the investor should strive to know the following:-
33. What are the major obligations and responsibilities of NIC Securities?
34. What are the major rights and obligations of an investor?
35. What accounts should an investor should have to be able to trade in the securities market?
36. How does trading take place and what is the process of trading?
The normal course of online/physical trading in the Kenyan market context is placed below:
37. What is Online Trading and Direct Market Access (DMA)?
Direct Market Access (DMA) is a facility which allows Stockbrokers to offer clients direct access to the exchange trading system through the Stockbroker’s infrastructure (internet) without manual intervention by the Stockbroker.
38. What are the advantages offered by DMA?