The Central Depository & Settlement Corporation (CDSC) has proposed revised rates for equity and bond transactions, this will impact the cost of trading and the operational landscape for market intermediaries. These changes, which include adjusted brokerage commissions and various transaction levies, are designed to support the infrastructure of the Central Depository & Settlement Corporation (CDSC) and the Nairobi Securities Exchange (NSE) while maintaining a secure environment for capital growth.
The commission for brokers has increased from 1.5% to 1.76%. A levy of 0.12% is now applicable to transactions executed at the exchange, this is an increase from 0.8%. CDSC Guarantee Fund (GF) Levy remains at 0.01% of the transaction value, collected by agents and remitted to the Guarantee Fund Trust. A levy of 0.01% is included in the Investor Protection Fund (IPF) to bolster protection for market participants. A 16% VAT is now applied to these fees.
For the individual investor, these revisions mean an increase in the total cost of transacting. Higher cumulative fees now subject to 16% VAT can slightly reduce net returns on every trade. According to general investment education principles, such fee structures often act as a deterrent for frequent, short-term trading.
By increasing the cost of entry and exit, these rates encourage investors to adopt a long-term investment horizon. Holding securities for longer periods helps mitigate the impact of transaction-based levies and aligns investor behavior with the stability of the broader market.
Brokers and Central Depository Agents (CDAs) are directly affected by the shift in commission rates to 1.76%. While this may increase revenue per trade, it also comes with administrative responsibilities. Agents are tasked with the accurate collection and remittance of various levies, such as the Guarantee Fund Levy, at the same time as the transaction levy.
The primary goal of these levies, particularly the CDSC Guarantee Fund and the Investor Protection Fund, is to ensure market integrity and stability. The CDSC Guarantee Fund, for instance, is supported by a 2.5% annual management fee to ensure the depository can handle risks and protect the clearing and settlement process.
By prescribing clear rates for specialized actions such as Security Lending and Borrowing (SLB), which carries a 16% commission for lending and 0.55% for borrowing the CDSC provides a transparent framework for sophisticated market activities. While the higher fees may be perceived as a burden, they are essential for covering the operational costs of intermediaries and providing a secure, regulated platform for wealth creation.
