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Settlement of Securities Moves to Central Bank of Kenya

Nairobi January 16, 2015: …In a move that will improve the efficiency of settlement of equities and corporate bonds and align the process to international best practice, Central Depository and Settlement Corporation (CDSC) has worked together with the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK) to develop a more robust cash settlement model for equities and corporate bonds. 

The cash side of the settlement process for transactions concluded on the Nairobi Securities Exchange (NSE) is now being done through the Central Bank of Kenya’s (CBK) Real Time Gross Settlement (RTGS) system, with effect from January 15, 2015. Previously, the cash settlement for securities transactions was effected through four commercial banks appointed as settlement banks by the CDSC. The securities leg of the settlement process, which entails the transfer of securities between the buyers and sellers, will continue to be carried out at CDSC.

While making the announcement, the CDSC Chief Executive, Mrs. Rose Mambo, said that this milestone moves the capital market a step closer towards providing full delivery versus payment (DVP) while deepening the capital markets. Mrs. Mambo emphasized that settlement of cash for securities transactions through CBK enhances efficiency and makes substantial strides towards full implementation of the CPMI - IOSCO Standards for Financial Markets Infrastructures. Mrs. Mambo added “CDSC is a key institution in the capital market that provides a secure central record of ownership and provides the means for the secure transfer of ownership of securities and settlement of cash following transactions at NSE”.  

The CBK Governor, Prof. Njuguna Ndung’u, said “the settlement of equities and corporate bonds at CBK is part of the Bank’s legal mandate in formulating and implementing policies that best promote the establishment, regulation and supervision of efficient, effective payment, clearing and settlement systems”. 

Prof Ndung’u explained that settlement using the RTGS system is aligned to the broader East African Community (EAC) objective of enhancing the efficiency of the settlement system as the region prepares for integration of the financial system.

The Capital Markets Authority (CMA) Acting Chief Executive, Mr. Paul Muthaura, noted the use of the RTGS system for securities settlement is a substantial step in strengthening the measures to address settlement risk, in line with the overall mitigation arrangements to combat systemic risk. 

This constitutes the first phase of the Kenyan markets full transition to settlement of securities transactions in Central Bank money in line with global best practice standards. This arrangement is expected to boost foreign and domestic investor confidence in the Kenyan market and promote greater liquidity at the Nairobi Securities Exchange (NSE).  Mr. Muthaura observed: ‘’This  moves Kenya a step closer to attaining the status of a Regional and International Financial Center as envisaged in the Vision 2030 Economic Blueprint and the Capital Markets Master Plan.” 

The settlement cycle remains unchanged at T+3.