New annual fee to hit small NSE investors where it hurts most

Small investors at the Nairobi Securities Exchange (NSE) have been spooked by the introduction of an annual Sh1,200 account maintenance fee.

The Central Depository and Settlement Corporation (CDSC), the company which offers clearing and settlement services at the NSE, says it will from mid-July start charging investors Sh100 a month. The charges, which amount to Sh1,200 a year, will add to other charges, including transaction levy in what looks set to blunt the attractiveness of NSE investments by retail investors. “Dear Investor, effective July 15, 2022, CDSC will introduce a CDS account maintenance fee of Sh100 per month payable annually,” said the company.

CDSC data shows there were 1.52 million CDS account registrations, out of which 1.13 million were active distinct CDS accounts at the end of 2020. Thousands of retail investors with a few shares on the bourse have struggled to make a return, especially with many firms struggling to pay dividends as share prices fall. Many such small investors have only been treated to freebies, including umbrellas, t-shirts and lunch, during physical annual general meetings.

Introducing an account maintenance fee will, therefore, throw such shareholders off-balance, with many likely to spend more than what they earn from their investments. Even for consistent dividend-paying firms such as Safaricom, banks, Jubilee Insurance, East African Breweries Ltd and British American Tobacco, investors would require some sizeable shares to recover the maintenance fees. For instance, Co-operative Bank’s Sh1 per share payout that has been proposed means an investor requires at least 1,200 shares to be able to earn a return that can cover maintenance fees.

For Equity Bank, which has proposed a Sh3 dividend payout per share, it would take at least 400 shares, while NCBA’s Sh2.25 per share will need at least 534 shares. Seasoned trader and chairman of Dyer & Blair Investment Bank Jimnah Mbaru faulted the CDSC for the fees.

“The NSE should take over the CDSC and drop these proposed fees. We need to continue to reduce the costs of trading securities on the exchange. In our small market, the CDSC should be the back office of the trading floor,” said Mr Mbaru via his Twitter handle.

But NSE is set to benefit from the additional revenue raised by the CDSC given that it holds a 40.5 per cent stake in the entity whose revenue stood at Sh308 million in 2020.

“CDSC has just talked about fees without indicating if there is going to be any value addition for the account holders. That is not a smart move,” said one stockbroker who sought anonymity.

“We are likely to see more attention to the unit trust, which guarantees minimum return as opposed to paying maintenance fee, yet there is no guarantee that dividends or capital gains will always be there.”   

Official data shows the total number of shares traded at the NSE has dropped 43 per cent from 7.06 billion shares in 2017 to 4.05 million shares traded in 2021, while the number of deals fell from 284,982 to 277,611.