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