New rules limit access for retail investors on Nairobi bourse

Saturday September 24 2016

Brokers at the Nairobi Securities Exchange have been spared business losses by new rules that prohibit retail investors from buying and selling shares and bonds directly.

Direct Market Access, which is meant to ease access to the market by investors — especially those in the diaspora — had been seen as a threat to the income of stockbrokers and investment banks.

The intermediaries earn commissions of between 1.5 per cent and 1.76 per cent on the value of a transaction in the case of shares and of 0.024 per cent for bonds.

Direct access to the market, according to policy guidelines seen by The EastAfrican, will now only be allowed for financial institutions and pension funds, who can put at least Ksh5 million ($50,000) on the securities. However, they will be required to sign contracts with the intermediaries with know-your-customer provisions, a key feature.

The contracts will also stipulate how investors will be using the identities of intermediaries to access the system and provide safeguards on appropriate use of the system. The measures are meant to prevent identity theft, fraud and money laundering.

Investors will be required to register with the intermediaries, get system access credentials from the intermediaries and use them to place orders for sale or purchase.


These orders will go directly for execution at the exchange without any intervention from the broker. However, the intermediaries will be held liable for orders emanating through their DMA systems. They also take full responsibility for the trading, settlement and risk management obligations of their clients.

Under the DMA system, institutional clients and foreign investors are expected to have a direct control over their orders resulting in faster execution of transactions.

However, it will expose local stockbrokers to competition from intermediaries abroad through whose systems fund managers can place orders directly.

The NSE will ensure sound audit trail for all DMA orders and trades.

If the DMA is through an intermediary, the intermediary should be able to provide identification of actual user-ID for all such orders and trades.

The audit trail data should be available for at least five years and exchanges should be able to identify and distinguish DMA orders and trades from other orders and trades.

NSE shall maintain statistical data on DMA trades and provide information on the same to the CMA on request.

In India, stockbrokers providing the DMA facility to clients are entitled to brokerage and statutory levies. The broker is empowered to call upon the client to pay initial margins, withholding margins or such other margins as are considered necessary by the broker or Bombay Stock Exchange or as may be specified by Securities Exchange Board of India.

The broker is entitled in its sole discretion to collect additional margins and the client is obliged to pay such margins within the stipulated time. In the UK, DMA platforms require an investor to pay a fee to the online broker, a fee that in most cases depends on the volume of trade and inactivity fee when the investor is dormant.