Nairobi Securities Exchange

The Nairobi Securities Exchange (NSE) was established in 1954 as the Nairobi Stock Exchange, based in Nairobi the capital of Kenya. It was a voluntary association of stockbrokers in the European community registered under the Societies Act in British Kenya.[3][4]

Nairobi Securities Exchange
TypeStock exchange
LocationNairobi, Nairobi County, Kenya
Founded1954
Key peopleMr. Samuel Kimani - Chairman
Geoffrey Odundo - CEO
CurrencyKenya Shilling
No. of listings65[1]
Market capKsh 2.248 trillion 24 October 2014[2]
IndicesNSE All Share Index
NSE 20 Share Index
FTSE NSE Indices
FTSE NSE Kenya 15 Index
FTSE NSE Kenya 25 Index
FTSE NSE Kenya Govt. Bond Index
FTSE ASEA Pan African Index
WebsiteNSE.co.ke

History

Dealing in shares and stocks started in the 1920s when it was the British colonial Kenya Colony (1920−1963), a part of the British Empire.

A stock exchange was first floated in 1922 at the Exchange Bar in the Stanley Hotel in Nairobi.[5] However, the market was not formal as there did not exist any rules and regulations to govern stock broking activities. Trading took place on a ‘gentleman's agreement.’ [6] Standard commissions were charged with clients being obligated to honour their contractual commitments of making good delivery and settling relevant costs. At that time, stock broking was a sideline business conducted by accountants, auctioneers, estate agents and lawyers who met to exchange prices over a cup of coffee. Because these firms were engaged in other areas of specialisation, the need for association did not arise.[7]

In 1951, an estate agent named of Francis Drummond established the first professional stock broking firm. He also approached the finance minister of Kenya, Sir Ernest Vasey, and impressed upon him the idea of setting up a stock exchange in East Africa. The two approached London Stock Exchange officials in July 1953 and the London officials accepted to recognise the setting up of the Nairobi Stock Exchange as an overseas stock exchange.

1954–1995

In 1954 the Nairobi Stock Exchange was then constituted as a voluntary association of stockbrokers registered under the Societies Act. Since Africans and Asians were not permitted to trade in securities, until after the attainment of independence in 1963, the business of dealing in shares was confined to the resident European community. At the dawn of independence, stock market activity slumped, due to uncertainty about the future of independent Kenya.

1988 saw the first privatisation through the NSE, of the successful sale of a 20% government stake in Kenya Commercial Bank. The sale left the Government of Kenya and affiliated institutions retaining 80% ownership of the bank.

Notably, on 18 February 1994 the NSE 20-Share Index recorded an all-record high of 5030 points. The NSE was rated by the International Finance Corporation (IFC) as the best performing market in the world with a return of 179% in dollar terms. The NSE also moved to more spacious premises at the Nation Centre in July 1994, setting up a computerised delivery and settlement system (DASS). For the first time since the formation of the Nairobi Stock Exchange, the number of stockbrokers increased with the licensing of eight new brokers.

1996–2005

In 1996, the largest share issue in the history of NSE, the privatisation of Kenya Airways, came to the market. Having sold a 26% stake to KLM, the Government of Kenya proceeded to offer 235,423,896 shares (51% of the fully paid and issued shares of Kshs. 5.00 each) to the public at Kshs. 11.25 per share. More than 110,000 shareholders acquired a stake in the airline and the Government of Kenya reduced its stake from 74% to 23%. The Kenya Airways Privatization team was awarded the World Bank Award for Excellence for 1996 for being a model success story in the divestiture of state-owned enterprises.[8] In 1998 the government expands the scope for foreign investment by introducing incentives for capital markets growth including the setting up of tax‐free Venture Capital Funds, removal of Capital Gains Tax on insurance companies' investments, allowance of beneficial ownership by foreigners in local stockbrokers and fund managers and the envisaged licensing of Dealing Firms to improve market liquidity.

With effect from 1 January 1999, Kenya adopted the International Accounting Standards (IAS) as the local accounting standards.

In August 2000, NSE implements a new trading cycle, (T+5). The Central Depository System (CDS) Act and the amended CMA Act (which covers Collective Investment Schemes (CIS)) are passed by Parliament and receive presidential assent, paving the way for the full implementation of the CDS and for the introduction of collective investment schemes in the Kenyan market.[9]

Following the signing of a partnership agreement with the Association of National Numbering Agencies (ANNA) in September 2000, the NSE was appointed as the National Numbering Agency (NNA) for Kenya. The NNA is responsible for issuing the ISIN for financial securities issued under Kenyan jurisdiction in accordance with the ISO 6166 guidelines issued by ANNA.[10]

In October 2000 NSE becomes a member of the Association of National Numbering Agencies (ANNA), the global securities numbering agency.[11]

In April 2002 CMA announced the approval of the new NSE trading and settlement rules. The amount for block trades was revised upwards from Kshs. 3.0 million to between Kshs. 50.0 – 200.0 million. The block trade rules now apply to trade values of above Kshs. 50.0 million but less than Kshs. 200.0 million. Lastly, the brokerage commissions’ regime was liberalised.

July 2002 saw the foreign investor regulations amended, providing for a 25% minimum reserve of the issued share capital for Kenyan citizens, while the balance of the 75% becomes a free float for all classes of investors. Within this 75% share holding available to all classes of investors, there is no restriction on the amount to be held by a single foreign investor.

The signing of the shareholders’ agreement for the Central Depository and Settlement Corporation (CDSC) was done in August 2002. The shareholders consisted of the Nairobi Stock Exchange (20%), the Association of Kenya Stockbrokers (18%), the CMA Investor Compensation Fund (7%), and 9 institutional investors through the Capital Markets Challenge Fund (50%) who collectively invested in the Central Depository and Settlement Corporation (CDSC). The CDSC being the legal entity that owns and runs the clearing, settlement, depository and registry system for securities traded in Kenya's capital markets.

As of November 2002, the NSE became the sole NNA in Kenya, responsible for allocating the unique code for quoted and unquoted securities domiciled in Kenya.

In March 2003 the CDSC in collaboration with the NSE commenced the CDS Education Campaign in preparation for the market automation. The first CDS Education Workshop, with the theme "The CDS Legal & Regulatory Framework" kicked off.

For the year ending 31 December 2003, the exchange recorded an equity turnover exceeding Kshs. 15.25 billion, more than the combined equity turnover recorded in the previous five years.

The NSE celebrated its Golden Jubilee in 2004, and also had the privilege of hosting the 8th ASEA conference. In this celebration, the first NSE magazine dubbed "The Exchange" and, The Central Depository & Settlement Corporation (CDSC), which manages Central Depository Systems, were both launched.

For the year ending 31 December 2004, the exchange recorded an equity turnover exceeding Kshs. 22.32 billion; an increase of 46.37% over the corresponding period for 2003.

For the year ending 31 December 2005, the exchange recorded an equity turnover exceeding Kshs. 36.52 billion (a 63.61% increase over the previous year's performance of Kshs. 22.32 billion),

2006–2008

In May 2006, NSE formed a demutualisation committee to spearhead the process of demutualisation. A demutualisation consultant (Ernst and Young) was appointed to advise on the process.

In September 2006 live trading on the automated trading systems of the Nairobi Stock Exchange was implemented. The ATS was sourced from Millennium Information Technologies (MIT) of Colombo, Sri Lanka, who are also the suppliers of the Central Depository System (CDS). MIT have also supplied similar solutions to the Colombo Stock Exchange and the Stock Exchange of Mauritius. The NSE ATS solution was customised to uphold the spirit of the Open Outcry Trading Rules in an automated environment.

In the same breadth, trading hours increased from two (10:00 am – 12:00 pm) to three (10:00 am – 1:00 pm). Other innovations included the removal of the block trades board and introduction of the functionality for the trading of rights in the same manner as equities. Besides trading equities, the ATS is also fully capable of trading immobilised corporate bonds and treasury bonds.

An MoU between the Nairobi Stock Exchange and Uganda Securities Exchange was signed in November 2006 on mass cross listing. The MoU allowed listed companies in both exchanges to dualist. This will facilitate growth and development of the regional securities markets.

In February 2007 NSE upgraded its website to enhance easy and faster access of accurate, factual and timely trading information. The upgraded website is used to boost data vending business.

In July 2007 NSE reviewed the Index and announced the companies that would constitute the NSE Share Index. The review of the NSE 20‐share index was aimed at ensuring it is a true barometer of the market. A wide area network (WAN) platform was implemented in 2007; this eradicated the need for brokers to send their staff (dealers) to the trading floor to conduct business. Trading is now mainly conducted from the brokers' offices through the WAN. However, brokers under certain circumstances can still conduct trading from the floor of the NSE.

In 2008, the NSE All Share Index (NASI) was introduced as an alternative index. Its measure is an overall indicator of market performance. The Index incorporates all the traded shares of the day. Its attention is therefore on the overall market capitalisation rather than the price movements of select counters. In April 2008, NSE launched the NSE Smart Youth Investment Challenge to promote stock market investments among Kenyan youth.

The objective of the challenge is threefold:

  • To occupy the minds of the youth positively and draw them away from the negative energy created by the current political, economic and social situation in the country;
  • Encourage the culture of thrift and saving funds amongst the university students;
  • Encourage the youth to invest their savings in the capital markets.

After the resignation of Chris Mwebesa, the NSE Board appointed Peter Mwangi to be the new NSE chief executive in November 2008.

The Complaints Handling Unit (CHU) was launched in August 2009 to bridge the confidence gap with NSE retail investors. CHU provides a hassle-free and convenient way to have any concerns processed and resolved. Investors — local and in the diaspora — can forward their issues via e‐mail, telephone, fax, or SMS and have the ability to track progress on‐line.

2009–2013

The Nairobi Stock Exchange marked the first day of automated trading in government bonds through the Automated Trading System (ATS) in November 2009. The automated trading in government bonds marked a significant step in the efforts by the NSE and CBK towards creating depth in the capital markets by providing the necessary liquidity.

In December 2009, NSE marked a milestone by uploading all government bonds on the ATS. Also in 2009, NSE launched the Complaints Handling Unit (CHU) SMS System to make it easier for investors and the general public to forward any queries or complaints to NSE

In July 2011, the Nairobi Stock Exchange Limited, changed its name to the Nairobi Securities Exchange Limited. The change of name reflected the strategic plan of the Nairobi Securities Exchange to evolve into a full service securities exchange which supports trading, clearing and settlement of equities, debt, derivatives and other associated instruments. In the same year, the equity settlement cycle moved from the previous T+4 settlement cycle to the T+3 settlement cycle. This allowed investors who sell their shares, to get their money three (3) days after the sale of their shares. The buyers of these shares, will have their CDS accounts credited with the shares, in the same time.

In September 2011 the Nairobi Securities Exchange converted from a company limited by guarantee to a company limited by shares and adopted a new Memorandum and Articles of Association reflecting the change. In October 2011, the Broker Back Office commenced operations. The system has the capability to facilitate internet trading which improved the integrity of the Exchange trading systems and facilitates greater access to the securities market.

In November 2011 the FTSE NSE Kenya 15 and FTSE NSE Kenya 25 Indices were launched. The launch of the indices was the result of an extensive market consultation process with local asset owners and fund managers and reflects the growing interest in new domestic investment and diversification opportunities in the East African region.

As of March 2012, the Nairobi Securities Exchange became a member of the Financial Information Services Division (FISD) of the Software and Information Industry Association (SIIA).

In March 2012 the delayed index values of the FTSE NSE Kenya 15 Index and the FTSE NSE Kenya 25 Index were made available on the NSE website www.nse.co.ke. The new initiative gives investors the opportunity to access current information and provides a reliable indication of the Kenyan equity market’s performance during trading hours.

In May 2013, the Nairobi Securities Exchange moved to the Exchange, 55 Westlands Road, Westlands, Nairobi.

From 2014

On 27 June 2014, The Capital Markets Authority proved the listing of the NSE stock through an IPO and subsequently self-list its shares on the Main Investment Market Segment. The IPO was set to open on 24 July 2014 and would run up to 12 August 2014.[12] The listing will make the NSE join the Johannesburg Stock Exchange in being the only exchanges in Africa that are self-listed.

The NSE IPO was oversubscribed by 763.92%[13] making it the most oversubscribed share offer in the NSE’s 60-year history.[14] The NSE shares started trading on the Main Investment Market Segment of the exchange on 9 September 2014[15]

In November 2014, the NSE welcomed two new listing to the bourse, i.e. Flame Tree Group,[16] an FMCG company and Kurwitu Ventures,[17] a Sharia compliant investment company. Both were listed in the Growth Enterprise Market Segment by way of introduction. Effective 11 February 2015, CMC Holdings, Kenya's largest importer of vehicles and largest car-assembly company, was de-listed from the NSE, following its take over by the Al-Futtaim Group, based in the United Arab Emirates.[18]

In March 2015, the NSE officially joined the United Nations Sustainable Stock Exchanges (SSE) initiative whereby they made a voluntary pledge to inform their stakeholders of the importance of integrating sustainability in their capital markets.[19][20]

Types of indices

These include:

  1. NSE 20 Share Index- Mean of top 20 performing companies under a certain review year
  2. NSE 25 Share Index- designed to represent performance of kenyan companies listed in the NSE
  3. NSE All Share Index (NASI)
  4. FTSE NSE Indices
  5. Chuley

Regional integration

NSE is a member of the African Securities Exchanges Association, East African Securities Exchanges Association and an affiliate member of World Federation of Exchanges.

Market listings
Main article: Companies traded on the Nairobi Securities Exchange

Subsidiaries and Investments

Other than stock and bond trading as the main business of the NSE, the exchange has the following investments:[21]

  • NSE Clear Limited - 100% Shareholding - Nairobi, Kenya - Provision of clearing house services for the derivatives/futures exchange.
  • Central Depository and Settlement Corporation Limited - 22.5% Shareholding - Nairobi, Kenya - Provision of clearing, settlement and depository services.

Ownership

The shares of the Nairobi Securities Exchange are listed and traded on its own main board, under the symbol: NSE. As of 31 December 2014 the shareholding in the bourse's stock was as depicted in the table below:[22]

Nairobi Securities Exchange Stock Ownership
RankName of OwnerPercentage Ownership
1 Standard Chartered Kenya Nominees 21.75
2 CfC Stanbic Nominees Kenya Limited 7.67
3Cabinet Secretary, Treasury of Kenya3.37
4Investor Compensation Fund Board3.37
5Other63.84
Total100.00

Governance

Nairobi Securities Exchange is governed by an eleven-person Board of Directors with Kiprono Kittony serving as the Chairman of the group and Geoffrey Odundo as the CEO.[22]

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See also

References
  1. "Nairobi Securities Exchange (NSE) Live". afx.kwayisi.org. Retrieved 17 June 2018.
  2. NSE Equity Daily Statistics
  3. https://web.archive.org/web/20000817024711/http://www.nse.co.ke/. Archived from the original on 17 August 2000. Missing or empty |title= (help)
  4. "Nairobi securities exchange". Annual Report: 9. 2017 – via annual report 2016.
  5. DK Eyewitness Travel Guide: Kenya. Dorling Kindersley Ltd. 2011. p. 362. ISBN 978-1-405-36937-4.
  6. Editor, Nairobian. "Shares were traded from this bar floor at The Sarova Stanley hotel". Standard Digital News. Retrieved 13 August 2018.CS1 maint: extra text: authors list (link)
  7. History of the Nairobi Securities Exchange
  8. "Nairobi Securities Exchange - NSE Kenya" (PDF). www.nse.co.ke. p. 29. Retrieved 29 May 2020.
  9. Claude, Kremer; Isabelle, Lebbe (20 March 2014). "1 Introduction". Collective Investment Schemes in Luxembourg. doi:10.1093/law/9780199651863.003.0001.
  10. Agencies, ANNA Association of National Numbering. "Association of National Numbering Agencies (ANNA)". Association of National Numbering Agencies (ANNA). Retrieved 29 May 2020.
  11. Biekpe, Nicholas. "African Markets Overview" (PDF). AFRICAN MARKETS OVERVIEW October 2000: 32.
  12. NSE set to sell shares to public on 24 July
  13. "IPO oversubscribed by 764 pc, says NSE". The People Daily. Mediamax Network. 4 September 2014. Archived from the original on 9 September 2014. Retrieved 9 September 2014.
  14. "NSE IPO Oversubscribed". Citizen TV. 2 September 2014. Archived from the original on 10 September 2014. Retrieved 9 September 2014.
  15. "NSE value rises to Sh3 billion on first day of trading". Business Daily. Nation Media Group. 9 September 2014. Retrieved 9 September 2014.
  16. Wahito, Margaret (6 November 2014). "Kenya: Flame Tree Group Enters Bourse Via Gems". All Africa. Capital FM. Retrieved 8 November 2014.
  17. "Kurwitu Ventures to list on GEMs at Sh1,250 a share". Business Daily. Nation Media Group. 10 November 2014. Retrieved 12 November 2014.
  18. "CMC Holdings Delisted From Nairobi Securities Exchange". Business Daily Africa (Nairobi). 12 February 2015. Retrieved 12 February 2015.
  19. "Nairobi Securities Exchange Joins United Nations Sustainable Stock Exchanges Initiative". SSE Initiative. SSE. Retrieved 12 March 2015.
  20. "Kenyan stock exchange promotes transparency in capital markets". Coastweek. Xinhua News Service. Retrieved 18 March 2015.
  21. "Nairobi Securities Exchange IPO Prospectus" (PDF). Nairobi Securities Exchange. 9 July 2014. Retrieved 31 December 2014.
  22. "Nairobi Securities Exchange 2015 Annual Report". Nairobi Securities Exchange. 31 December 2015. Retrieved 18 January 2016.
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