The Central Depositories (Regulation of Central Depositories) Rules

These Rules may be cited as the Central Depositories (Regulation of Central Depositories) Rules.

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Jurisdiction: Kenya
Instrument: Notice
Citation: Legal Notice 118 of 2004
Version: Undated source snapshot
Language: en

Source attribution: Source: Kenya Law

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About this statute

These Rules may be cited as the Central Depositories (Regulation of Central Depositories) Rules. Defines the terms "Act", "Authority", and "nominee company" for these Rules. Within four months from commencement provide a list of its central depository agents approved by the central depository to the Authority, and thereafter notify the Authority each time it approves a central depository agent within forty eight hours after each approval. An application for approval to operate a central depository must be submitted to the Authority in Form 1 set out in the First Schedule. Sets out CDS rules on appointment, functions, suspension and revocation of appointment of central depository agents.

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Provisions of The Central Depositories (Regulation of Central Depositories) Rules

Showing 23 of 23

Part I

Preliminary

1
Preliminary - 1. Citation

AI-assisted research summary: These Rules may be cited as the Central Depositories (Regulation of Central Depositories) Rules.

Section 1. Citation Section These Rules may be cited as the Central Depositories (Regulation of Central Depositories) Rules.
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Preliminary - 2. Interpretation

AI-assisted research summary: Defines the terms "Act", "Authority", and "nominee company" for these Rules.

Section 2. Interpretation Section In these Rules, unless the context otherwise requires— "Act" includes reference to the Central Depositories Act; "Authority" means the Capital Markets Authority established under section 5 of the Capital Markets Act ("reference to the Central Depositories Act;") (Cap. 485A); "nominee company" in relation to the central depository is a company incorporated and wholly owned by the central depository whose only purpose is to hold the securities in the central depository as a bare trustee on behalf of the depositors.

Part II

THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES

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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 10. Reporting obligations

AI-assisted research summary: Within four months from commencement provide a list of its central depository agents approved by the central depository to the Authority, and thereafter notify the Authority each time it approves a central depository agent within forty eight hours after each approval.

Section 10. Reporting obligations Section within four months from the commencement of its operations provide a list of its central depository agents approved by the central depository to the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") and shall thereafter notify the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") each time it approves a central depository agent within forty eight hours after each approval; and
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 3. Application to operate a central depository

AI-assisted research summary: An application for approval to operate a central depository must be submitted to the Authority in Form 1 set out in the First Schedule.

Section 3. Application to operate a central depository Section 3(1) An application for approval to operate a central depository shall be submitted to the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") in Form 1 set out in the First Schedule. Section 3(2)(a) memorandum and articles of association of the applicant whose main objective shall be to operate a central depository, the certificate of incorporation and applicant’s proposed rules; Section 3(2)(b) the name(s), certificate(s) of incorporation, memorandum and articles of association for all its nominee companies; Section 3(2)(c) a business model including the details of the depository and settlement system proposed to be adopted by the applicant; Section 3(2)(d) a certified copy of the agreement between the systems provider and the applicant (where applicable); Section 3(2)(e) rules made pursuant to rule 4; Section 3(2)(f) the prescribed fees set out in the Capital Markets Act ("reference to the Central Depositories Act;") (Cap. 485A); Section 3(2)(g) a schedule of proposed fees and penalties; and Section 3(2)(h) such additional documents as may be required by the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") .
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 4. CDS rules

AI-assisted research summary: Sets out CDS rules on appointment, functions, suspension and revocation of appointment of central depository agents.

Section 4. CDS rules Section appointment, functions, suspension and revocation of appointment of central depository agents;
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 5. Chief executive officer of a central depository

AI-assisted research summary: The provision establishes a chief executive officer for the central depository, requires that the chief executive be in charge of day-to-day affairs, sets minimum qualifications and at least seven years' management experience in financial markets, and prohibits the chief executive from simultaneously being a stockbroker, dealer, licensed investment bank personnel, director or shareholder.

Section 5. Chief executive officer of a central depository Section 5(1) There shall be a chief executive officer of a central of a central depository who shall be in charge of the day to day affairs of the central depository. Section 5(2)(a) qualifications in law, finance, accounting, economics, banking or insurance; and Section 5(2)(b) at least seven years experience at management level in matters relating to financial markets. Section 5(3) The chief executive of a central depository shall not at the same time be a stockbroker, dealer or an investment bank licensed by the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") or a key personnel, director or shareholder thereof.
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 6. Chairperson of a central depository

AI-assisted research summary: There must be a chairperson of the board of a central depository who shall be non-executive and elected by the Board in compliance with internationally accepted corporate governance practices and principles.

Section 6. Chairperson of a central depository Section There shall be a chairperson of the board of a central depository who shall be non-executive and elected by the Board in compliance with internationally accepted corporate governance practices and principles.
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 7. Appointment of committees

AI-assisted research summary: An audit committee shall comprise of at least two non executive directors qualified in law, finance, accounting or economics.

Section 7. Appointment of committees Section an audit committee which shall comprise of at least two non executive directors qualified in law, finance, accounting or economics:
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 8. Fees, levies and penalties

AI-assisted research summary: Central depository must charge fees and levies approved by the Capital Markets Authority; fees and penalties are reviewed every two years or earlier for exceptional circumstances, with specified review procedures, notification and timelines.

Section 8. Fees, levies and penalties Section 8(1) The central depository shall charge such fees and levy such transaction and depository levies and penalties as approved by the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") . Section 8(2) The fees and penalties levied by a central depository will be reviewed every two years provided that the same may be reviewed earlier at the instance of either the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") or the central depository in the event of exceptional circumtance as defined in sub rule (5). Section 8(3)(a) the rate of inflation; Section 8(3)(b) market turnover; Section 8(3)(c) overall transaction fees in the market; Section 8(3)(d) viability and sustainability of the central depository; Section 8(3)(e) overall interest of the investors; and Section 8(3)(f) views of other market participants. Section 8(4)(a) actual and projected volumes of trade; Section 8(4)(b) actual and projected revenue; Section 8(4)(c) achieved and projected efficiency measures; Section 8(4)(d) proposed major capital expenditures. Section 8(5)(a) a doubling of the Kenyan rate of inflation as published by the Central Bureau of Statistics; Section 8(5)(b) a doubling of reported income of the central depository; Section 8(5)(c) a reduction of the reported gross revenue of the central depository by more than fifty per cent. Section 8(6) Where a central depository, in the case of exceptional circumstances, wishes to initiate a review as envisaged in subrule (4) the central depository shall notify the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") of the proposal to review the fees in writing justifying the proposed changes provided that no such review will be considered less than six months before the next scheduled review. Section 8(7) Where the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") initiates a review by reason of exceptional circumstances it shall notify the central depository of the review justifications for the proposed review and the central depository will be accorded an opportunity to make representations on the proposed changes before the final decision is made. Section 8(8) Where the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") or the central depository initiates a review by reason of exceptional circumstances the review will be completed within 90 days of the notice issued by the initiating party. Section 8(9) The Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") will ensure that a scheduled review process is completed not later than the second anniversary of the approval of the existing fees. Section 8(10) If the central depository is dissatisfied with the outcome of the review exercise it may apply for a review to the Capital Markets Tribunal established under the Capital Markets Act ("reference to the Central Depositories Act;") (Cap. 485A). Section 8(11) The fees prevailing before the appeal shall remain until the decision of the Tribunal is made. Section 8(12) The central depository and all central depository agents shall prominently display all approved fees, charges, levies and other imposts at their business premises.
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THE CENTRAL DEPOSITORY AND NOMINEE COMPANIES - 9. Central depository to maintain records

AI-assisted research summary: Every central depository must keep and preserve records and documents about depositors, central depository agents, and its Board meetings for seven years.

Section 9. Central depository to maintain records Section Every central depository shall, for a period of seven years, maintain and preserve all records and documents relating to depositors, central depository agents and meetings of its Board and the standing committees of its Board.

Part III

CENTRAL DEPOSITORY AGENTS

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CENTRAL DEPOSITORY AGENTS - 11. Application for appointment as an agent

AI-assisted research summary: Applications to be appointed as a central depository agent must be submitted to the central depository, and applicants must meet any technical requirements stipulated by the central depository.

Section 11. Application for appointment as an agent Section 11(1) An application for an appointment to operate as a central appointment as an agent, depository agent shall be submitted to the central depository. Section 11(2)(i) custodians or authorized depositories approved under the Capital Markets Act ("reference to the Central Depositories Act;") or the Retirement Benefits Act ("reference to the Central Depositories Act;") : Section 11(2)(ii) Central Bank of Kenya. Section 11(2A) A body corporate shall qualify to be appointed as a central depository agent under section 9 (2) (d) of the Act ("reference to the Central Depositories Act;") , if that body corporare meets the criteria set out in the Third Schedule to these Regulations. Section 11(3) The applicant shall meet any technical requirements as may be stipulated by the central depository. [L.N. 107/2013, r. 2]
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CENTRAL DEPOSITORY AGENTS - 12. Operations of accounts

AI-assisted research summary: Central depository agents who are also securities exchange members and stockbrokers must disclose, under rule 23 of the Central Depository (Operational) Rules, the holders of beneficial interest in accounts opened in the name of that stockbroker or its nominees.

Section 12. Operations of accounts Section Every central depository agent who is a member of a securities exchange and a stockbroker as defined under the Capital Markets Act ("reference to the Central Depositories Act;") shall disclose under rule 23 of the Central Depository (Operational) Rules the holders of beneficial interest to the accounts opened in the name of such stockbroker or its nominees.
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CENTRAL DEPOSITORY AGENTS - 13. Agents to maintain records and accounts

AI-assisted research summary: Agents must maintain records and accounts.

Section 13. Agents to maintain records and accounts Section collection and submission to the central depository of certificates for purposes of immobilisation of securities;
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CENTRAL DEPOSITORY AGENTS - 14. Right of access

AI-assisted research summary: The central depository may require its agents, with or without notice, to produce documents or records and to provide access to terminals and data so it can audit, investigate or review.

Section 14. Right of access Section The central depository shall from time to time and at any time with or without notice, require its agents to produce to it or a duly authorized person such documents or records in respect of any securities transactions or accounts and to provide access to its terminals and other computer peripherals situated at the agent’s premises and any data record or information in respect thereof as may, in the opinion of the central depository, be necessary for the purposes of enabling it to perform its audit investigation or review.

Part IV

CENTRAL DEPOSITORY GUARANTEE FUND

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CENTRAL DEPOSITORY GUARANTEE FUND - 15. Establishment of the Central Depositories Guarantee Fund

AI-assisted research summary: Establishes the Central Depository Guarantee Fund and lists permitted sources of its money, including a contribution by central depository agents of KSh 1,500,000 (or a higher amount determined in consultation with the Authority and Nairobi Stock Exchange), revenue contributions determined by the central depository's Board, and other funds the Board may, with Authority approval, determine.

Section 15. Establishment of the Central Depositories Guarantee Fund Section 15(1) There is established a fund to be known as the Central Depository Guarantee Fund (hereinafter referred to as Fund) for the purposes of ensuring settlement of trades through the central depository. Section 15(2)(a) a contribution of Kenya Shillings one million five hundred thousand (or such higher amount as the central depository may from time to time, in consultation with the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") and the Nairobi Stock Exchange, determine) by such central depository agents as will be involved in settlement; Section 15(2)(b) all penalties and fines imposed by the central depository; Section 15(2)(c) such sums of money as accrued from interest and profits from investing the Fund’s moneys; Section 15(2)(d) a levy for every transaction through the securities exchange as approved by the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") ; Section 15(2)(e) such contribution from the revenue of the central depository as its Board may from time to time determine; Section 15(2)(f) funds hitherto constituting the Nairobi Stock Exchange Investor Compensation Fund; and Section 15(2)(g) such other funds as the Board of the central depository, with the approval of the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") may determine.
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CENTRAL DEPOSITORY GUARANTEE FUND - 16. Management of the Fund

AI-assisted research summary: The central depository must manage the Fund as a separate fund, disclose it in its annual balance sheet, keep proper accounts, prepare an annual statement of accounts, include all sources, have the accounts audited by an appointed auditor, and make rules on the Fund’s operation and maintenance.

Section 16. Management of the Fund Section 16(1) The Fund shall be managed by the central depository as a separate fund and disclosed as such in the central depository’s annual balance sheet. Section 16(2) The central depository shall keep proper accounts and records of the Fund and in every financial year, prepare a statement of accounts showing the movement and financial position of the Fund in its annual report. Section 16(3) The accounts referred to in paragraph (2) shall include all sources of income and contributions to and expenses or disbursements of the Fund and any investments of the Fund. Section 16(4) The accounts and records of the Fund shall be audited by an auditor appointed by the central depository for its annual accounts. Section 16(5) The central depository shall make rules on the operation and maintenance of the Fund.

Part V

INSURANCE

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INSURANCE - 17. Insurance

AI-assisted research summary: The central depository must obtain and maintain insurance policies at a reasonable and competitive cost, allow inspection of those policies by its agents and the Authority during business hours on request, and must notify them of any material reduction in coverage.

Section 17. Insurance Section 17(1)(a) computer crime, involving theft or criminal damage to the computer system; Section 17(1)(b) theft, damage, falsification or alteration of any record or data kept within the computer system; Section 17(1)(c) stolen, missing certificates which are under the physical control of the central depository, whether such certificates are kept on its premises or are in transit; Section 17(1)(d) fire or theft of any records in any vault, premise or warehouse of the central depository where such records are kept pursuant to the Act ("reference to the Central Depositories Act;") ; Section 17(1)(e) professional negligence of its employees, agents or servants; Section 17(1)(f) public liability; and Section 17(1)(g) fraudulent or dishonest acts of its employees or agents with intent to cause or sustain loss. Section 17(2) The central depository shall obtain and maintain at a reasonable and competitive cost, one or more insurance policies for such amounts and coverage as may be reasonably determined in the best interests of the central depository and its depositors. Section 17(3) The insurance policies maintained by the central depository shall be available for inspection by central depository agents and the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") during business hours, upon request. Section 17(4) The central depository shall notify the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") and the Central Depository agents of any material reduction in the coverage or amount of any policy of insurance it maintains.

Part VI

Miscellaneous Provisions

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Miscellaneous Provisions - 18. Access only to authorized personnel

AI-assisted research summary: Central depository agents must ensure only persons authorized to transact business with the central depository can access the system linked to the central depository.

Section 18. Access only to authorized personnel Section Every central depository agent shall ensure that only persons authorized to transact business with the central depository have access (as defined in the Act ("reference to the Central Depositories Act;") ) to the system linked to the central depository.
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Miscellaneous Provisions - 19. Safe custody of immobilised securities

AI-assisted research summary: A central depository must ensure the safe custody of its jumbo certificates and is liable for any loss or destruction of them.

Section 19. Safe custody of immobilised securities Section A central depository shall ensure safe custody of its jumbo certificates and shall be liable in the event of any loss or destruction thereof.
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Miscellaneous Provisions - 20. Central Bank to be a central depository agent

AI-assisted research summary: The Central Bank of Kenya may be a central depository agent of the central depository.

Section 20. Central Bank to be a central depository agent Section The Central Bank of Kenya may be a central depository agent of the central depository on such terms as may be agreed with the central depository and through which government securities may be held.
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Miscellaneous Provisions - 21. Access to computer system

AI-assisted research summary: Section 21 names the Authority, systems providers, and vendors as actors with access roles; central depository agents may access the system and open, maintain and close depositor accounts on instructions; members may allocate trades under operational rules.

Section 21. Access to computer system Section 21(1)(a) the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") ; Section 21(1)(b) systems provider; and Section 21(1)(c) a vendor of the computer system pursuant to contract. Section 21(2) A central depository agent will have access to the system and be able to open, maintain and close depositor’s accounts upon their instructions. Section 21(3) Central depository agents who are members of the securities exchange shall also be able to allocate trades in accordance with the Central Depositories (Operational) Rules.
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Miscellaneous Provisions - 22. Linkages to other securities depositories outside Kenya

AI-assisted research summary: The Capital Markets Authority may, on request of the central depository, approve computer system linkages to other securities depositories, securities exchanges and appointment of central depository agents outside Kenya if satisfied such linkages promote capital market development and serve the interests of the public dealing with book-entry securities.

Section 22. Linkages to other securities depositories outside Kenya Section The Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") may on request of the central depository approve computer system linkages to other securities depositories, securities exchanges and the appointment of central depository agents outside Kenya if it is satisfied that such linkages would promote development in the capital markets and that the interests of the public dealing with book-entry securities will be served by the granting of the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") ’s approval.
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Miscellaneous Provisions - 23. Off-site disaster recovery plan

AI-assisted research summary: A central depository must, before it begins operations, put in place an off-site business continuity and disaster recovery plan and notify the Capital Markets Authority of it.

Section 23. Off-site disaster recovery plan Section A central depository shall, prior to commencement of its operations, make arrangements for an off -site business continuity and disaster recovery plan and notify the Authority ("the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);") of the same.

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