Merger of two securities depositories on course as study is commissioned

What you need to know:

  • Treasury has commissioned a study to explore the merger of two securities depositories run by the Central Depository and Settlement Corporation (CDSC) and the Central Bank of Kenya.

The planned merger of two securities depositories run by the Central Depository and Settlement Corporation (CDSC) and the Central Bank of Kenya has taken a step forward after the Treasury commissioned a study to explore the process.

CDSC is the custodian of shares listed at the Nairobi Securities Exchange while CBK holds custody of government securities.

CDSC had rooted for the merger of the two depositories as early as 2011 but the move did not come to fruition due to what analysts said was discomfort at CBK over the possibility of ceding custody of government securities to an entity in which the yet-to-be demutualised NSE held a significant stake of 22.3 per cent. The NSE has since demutualised and self-listed.

Treasury Principal Secretary Kamau Thugge Thursday said the government now believes the CDSC has the necessary capacity to host government securities whose current outstanding value stands at Sh1.86 trillion.

“We are determined to ensure that our settlement systems are efficient and convenient to investors and issuers of securities. In this regard, the Treasury has commissioned a study on the potential merger of CDSC’s depository and the CBK depository, which currently handles government securities,” said Dr Thugge during the launch of CDSC’s new brand identity.

“The study will explore the possibility of effecting a horizontal settlement system in line with international best practices… this will open up the space to allow the CDSC to hold government securities. We believe that CDSC has now come of age and can handle this assignment.”
Government securities have been the backbone of bonds trading in the secondary market, accounting for nearly 98 per cent of all trades at any given time (corporate bonds account for about two per cent).

CDSC on its part argues that there are no benefits to be accrued in the market by running a dual depository system.

“A market like ours is too small to have two separate depositories. These are findings that have come up through studies commissioned by the Treasury and CMA and the proposal is that we should have one depository,” said CDSC chief executive officer Rose Mambo.

Ms Mambo added that the depository will make the same case to be allowed to be the depository for any new product introduced in the market, especially now that the CDSC is upgrading its system with the purchase of new more advanced software.

The CDSC is by April next year going to have in place a new higher capacity system allowing the depository to handle more transactions simultaneously.

It procured the new system from South African payment and depository software provider Perago for Sh12 million and expects it to go live in April next year.

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