What Exactly Does Your NSE Stockbroker Do Behind the Scenes?

In the previous article, we looked at the role of the Capital Markets Authority (CMA) and the Central Depository and Settlement Corporation Limited (CDSC) in Kenya’s Capital Markets.

Check it out here https://urimtrader.me/blog/are-your-shares-on-the-nse-actually-safe-and-who-exactly-is-protecting-them.

From the article, CMA is the regulator, and the CDSC is the treasury/safe. In this article, we will see how stockbrokers are your gateway to the Kenyan market.

A stockbroker is a CMA-licensed and authorized market professional who buys and sells shares within the Nairobi Securities Exchange (NSE) on behalf of investors for a brokerage commission. In Kenya, before the launch of the Zidii Trader Service, as an investor, you could not directly trade the listed shares without a stockbroker. Therefore, a stockbroker is an intermediary in the NSE ecosystem between investors, the NSE, and the CDSC settlement systems.

Some of the main functions of a stockbroker within the NSE ecosystem are:

a) Market Access

A stockbroker is your entry point to the NSE as an investor. Through them, you can get a CDS account, access the NSE live, place buy and sell orders in the NSE, and follow through with your portfolio valuation.

A stockbroker will help you open your Central Depository System (CDS) account by verifying your Know Your Customer (KYC) details and sending them to the Central Depository and Settlement Corporation (CDSC), which sets up your account. The broker then links the account to your trading profile, allowing you to have a portfolio.

b) Order execution

This is among the most important roles of a stockbroker within the NSE. They execute your buy and sell orders based on the instructions you give. For example, when you execute a buy order of 1,000 KPLC shares at sh.16.20, your stockbroker will: ('A buy or sell order is an instruction to purchase or sell a specified number of shares, sometimes at a set price').

1. Receive the instruction
2. Redirect the instruction to the NSE.
3. Seek the best available execution based on the demand and supply of the shares and the type of order (market order and limit order)
4. Confirm the trade
5. Send the settlement details to CDSC.

Before this process took t+3 settlement days. However, with the growth of technology and capital markets, the execution could take seconds based on the supply and demand of the shares and the order type.

c). Facilitating Cash Movement and Settlement

After your order has been executed, the stockbroker facilitates cash credits for sales, cash debits for purchases, commission charges, tax, and levies through the delivery and payment processes. These lead to matched trades, quick ownership transfers, and efficient settlements.

d) Research, Advisory, and Corporate Action Communication

Research, advisory, and corporate action communication are not mandatory roles for stockbrokers in Kenya. However, most stockbrokers in Kenya offer research and advisory services to investors, which have helped increase financial literacy. The stockbrokers offer daily market reports, sector outlooks, company valuation analysis, buy and sell recommendations, and macroeconomic research.

Also, they inform investors on dividend announcements, rights issues, IPOs, tender offers, AGM notices, and onus issues. Thus, they act as the communication bridge between the listed companies, CDSC, CMA, and investors.

As an investor, it is important to conduct your due diligence on the information obtained from stockbrokers. Consider their research and advice as input rather than truth.

The licensed stockbrokers in Kenya are:

1. Dyer and Blair Investment Bank Ltd
2. Francis Drummond & Company Ltd
3. Suntra Investment Bank
4. Omni Marche Securities Africa Ltd
5. SBG Securities Ltd
6. Kingdom Securities Ltd
7. AIB-AXYS Africa
8. ABC Capital Ltd
9. Sterling Capital Ltd
10. Pergamon Investment Bank
11. Faida Investment Bank Ltd
12. Standard Investment Bank Ltd
13. Kestrel Capital (EA) Limited
14. Renaissance Capital (Kenya) Ltd
15. Genghis Capital Ltd
16. NCBA Investment Bank Ltd
17. Equity Investment Bank Ltd
18. KCB Investment Bank
19. Absa Securities Ltd
20. Capital A Investment Bank
21. EFG Hermes Kenya Ltd
22. Dry Associates