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.

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.

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...

Section 4. CDS rules Section appointment, functions, suspension and revocation of appointment of central depository agents;

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.

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.

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:

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. Sect...

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.

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

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]

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.

Section 13. Agents to maintain records and accounts Section collection and submission to the central depository of certificates for purposes of immobilisation of securities;

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.

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 determi...

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.

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...

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.

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.

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.

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.

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.

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.