How To Get Started In Stock Investment On The Nairobi Securities Exchange (NSE)

Getting started in stock or shares investment on the Nairobi Securities Exchange (NSE) is easy if you know what is required of you as an investor. The NSE is open for both domestic and foreign investors. However, for regulatory reasons, new investors are required to meet certain provisions before they can start buying and selling shares on the NSE. Most of these requirements are to the benefit of the investor because they protect them from unnecessary loss of investment, especially against of dishonest stockbrokers.

You need a CDS account

One of the important things you need to start investing in shares on the NSE is a CDS account. This is an electronic account, more or less like your bank account. However, it is used to hold shares instead of cash.  You cannot open a CDS account directly as a client. You will need to open the account through an agent, usually a stockbroker, who will also manage the account on your behalf at a small commission.

Required documents

You can open as many CDS accounts as you desire with different stockbrokers. However, you must submit certain documents, mostly for identification to open a CDS account for trading in shares on the NSE. You will need to provide your national identification (ID) card or a passport and two passport-size photos. You will also complete a form known as CDS 1 to open your CDS, after which your agent will issue you with your CDS account number.

To enhance the safety of your CDS account, you will be required to answer a confidential security question, the same way you do when opening an email account, for identification purposes.

CDS account for a company or group

For a company or a group, say, youth or women groups that want to invest in shares on the NSE, additional documents may be required. Such include certification of incorporation in the case of a company and registration certificate in the case of groups.

No minimum balance in CDS

Unlike most bank accounts that require that you maintain a minimum balance, your CDS account does not require that. Of course, there is no cash transaction in the CDS account, but you can sell all the shares in your CDS until you have a zero balance there.

Why you need a stockbroker

It is important to emphasize that you will need a stock broker to manage your CDS account. The main reason for this is that the access to the trading floor of the NSE preserved for only for authorized persons or institutions that buy and sell shares on behalf of their clients. In other words, as an individual stock investor, you do not have access to the NSE trading floor, especially if you are not an authorized dealer. In that case, you will have to buy and sell shares on the NSE through your stockbroker. The broker does not make investment decisions for you, but he is only there to respond to your instructions about shares to buy or sell.

Get a loan against your shares

The good thing about trading in shares is that you can obtain a loan against them. If you require a loan, you can approach a bank of a lender to give you a loan and pledge your shares as collateral. However, you will not be able to sell the shares held as collateral for a loan. Nonetheless, you can shift shares that you want assigned as collateral. For instance, if you initially pledged your Mumias Sugar Company (NSE:MSC) shares as collateral, you can change that. You can have your Safaricom Ltd (NSE:SCOM) shares as collateral for the loan. You will be able to make that kind of a shift on collateral in arrangement with the lender.

The other important thing to remember about using your shares to obtain a loan is that you will continue to earn dividends on your shares held as collateral, which should even make the loan repayment easy.

Click HERE to read about getting it right on the NSE.