5.1: Enhance depository and settlement infrastructure

Measurement
A new shareholding structure for CDSC
Working Group
WG2
Implementation Progress

CDSC has included this activity for implementation in their 2016-2020 strategy.

The board and management of the CDSC reviewed this recommendation at length and have determined that the Corporation’s shareholding is indeed representative of the key users of its facilities. This is highlighted in the Capital Markets Challenge Fund, a conglomerate of 9 issuers, Banks Investment Banks and insurance Companies, the Nairobi Securities Exchange (a public company), the AKS nominees – a special purpose vehicle of the members of KASIB and the Investor Compensation Fund.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
New Board reflects usage of CDSC
Working Group
WG2
Implementation Progress

CDSC has included this activity for implementation in their 2016-2020 strategy.

The CDSC Board is composed of members elected by the various shareholders of CDSC, who are a diverse representation of various participants and users. There are also 2 public interest directors who are elected by the Board through the nomination committee.

Timelines
2014-2016
 
Status
Completed
Measurement
Financial stability of CDSC
Working Group
WG3
Implementation Progress

 This has been reprioritized to a longterm activity.

Timelines
2016-2020
 
Status
Reprioritized
Measurement
Modern CDSC systems

The system was upgraded and went live on 14 October, 2019 and has the capability to support the following functions;

  • Enhanced Controls through Maker-checker
  • Removal of automated Pre-validation
  • Capabilities for Inter-depository linkages
  • Securities Lending and Borrowing, Short selling, day trading and over the counter trading.
  • Support for multiple settlement cycles, multiple markets and multiple currencies settlement.
  • Supports commodities exchange, depository receipts and Government Bonds clearing and settlement.
Working Group
WG2
Implementation Progress

Cash settlement leg for equities implemented through CBK RTGS system in 2015.
CDSC system modernization under implementation. 
 

Timelines
2014-2016
 
Status
Completed
Measurement
Risk management framework implemented at CDSC
Working Group
WG2
Implementation Progress

As part of improving risk management cash settlement leg for equities implemented through CBK RTGS system in 2015.
Enterprise Risk Management Framework is in place and review is done regularly.
Mitigation measures to be automated through the new systems.

CDSC has introduced a Risk function as well as a Compliance function within its organisational structure supported with an up to date Enterprise Risk Management Framework and Business Continuity Plan. Key programs for monitoring risk in place are:

  • Stress testing methodology for the Guarantee Fund.
  • Risk tolerance and appetite statement for the CDSC and the Settlement Guarantee Fund
  • Comprehensive risk registers
  • Continuous annual and spontaneous Business Impact Analysis to identify the critical processes and continuously improve on the controls to ensure minimal impact on disruptions and downtime.
Compliance function is responsible for monitoring and supervising the central depository’s agent and ensuring that the CDSC regulatory framework is adhered to by all participants.

Timelines
2016-2020
 
Status
Continuous
Measurement
Improved settlement performance (i.e. percent of transactions settling on due date)
Working Group
WG2
Implementation Progress

This is included in their 2016 - 2020 strategy.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Degree of compliance with principles
Working Group
WG2
Implementation Progress

The assessment was completed in 2016 and the recommendations are being implemented as per the work plan.
CDSC has engaged a consultant to assess the level of compliance with the CPMI-IOSCO principles. The report is expected in January 2020.
The assessment was independently assessed. And the level of compliance was assessed at Broadly Observed. CDSC is keen to seal all the gaps that have been identified during the assessment and is in the process of putting in place a work plan of implementation of the recommendations from the assessment.

Timelines
Continuous
 
Status
Continuous
Measurement
Consolidated CSD for all classes of securities
Working Group
WG2
Implementation Progress

A consultant was on-boarded by the National Treasury in July 2017 to undertake a feasibility study on the viability of merging the 2 CSDs

The study was completed in June 2018 on Kenya Post-trade infrastructure. The study recommended that CBK and CDSC should operate separate CSDs for government and corporate securities respectively since both are at different stages of upgrading their systems. However, this structure should be reviewed before the start of the next investment cycle, when it becomes necessary to invest in replacement systems.

Timelines
2016-2020
 
Status
Reprioritized
Measurement
Size of stock lending market
Working Group
WG2
Implementation Progress

The SLB and short selling Regulations were gazetted on 12 January 2018.
The Authority is in engagement with CDSC to develop the stock lending operational procedures. 

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Number of DR issues
Working Group
WG2
Implementation Progress

The new system under modernization has the capability of supporting the issuance of GDRs.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Number of form of Payment and DVP links open. Number of security transfers made.
Working Group
WG4
Implementation Progress

CDSC Kenya and CSCS of Nigeria are working in conjunction with the African Development Bank on an initiative to link the two markets to support trading and settlement of securities listed in the two countries. The proposed framework was submitted to the Authority on 6 April 2017.

On 4 February 2019, the Authority approved the application by CDSC on the proposed inter depositary services between Kenya and Nigeria facilitated by Africlear Global.

Timelines
2016-2020
 
Status
In Progress (Behind Schedule)
Measurement
Approval requirements and guidelines for CCP in place.
Working Group
WG2
Implementation Progress

The Authority developed a concept paper on the establishment of CCPs and is in the process of developing policy paper to guide requirements for the establishment of a CCP by June 2019.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Number of securities held in reciprocal accounts.
Working Group
WG4
Implementation Progress

In April 2017, CDSC made proposals to the Authority on connectivity with Nigeria Securities Exchange through Africlear. On 4 February 2019, the Authority approved the application by CDSC.

The new Central Depository System (CDS) that went live on 14 October 2019 has the capability of interdepository Linkages.

Timelines
2016-2020
 
Status
In Progress (Behind Schedule)