NAIROBI – Kenya’s Capital Markets Authority (CMA) today announced plans to start compensating customers of a collapsed stock brokerage company in a move that will help to restore investor confidence in the trading of shares and bonds at the Nairobi Securities Exchange (NSE). CMA said in a statement that it will start the compensation process for customers of the collapsed brokerage company Discount Securities Limited next week.
“Effective Feb. 8, the Capital Markets Authority (CMA) will commence the process of facilitating the payment of compensation to investors who incurred losses through Discount Securities Limited. The compensation will be drawn from the Investor Compensation Fund which is managed by the authority,” said the statement. CMA has chosen Cooperative Bank of Kenya through an open tender issued earlier to facilitate the payment of investors across the country.
The decision to compensate the investors is set to restore confidence among local shareholders who largely invested at the NSE through brokerage companies. Since the NSE boom that ended in 2008, a number of brokerage companies have either collapsed or are in financial trouble. Others sold shares of investors fraudulently and refused to remit the money.
CMA said payment through the bank will save customers the inconvenience and costs of travelling to the brokerage company offices in Nairobi for purposes of obtaining their monies. CMA CEO Stella Kilonzo said the compensation process will be undertaken in phases with the objective of settling the majority of claims as soon as possible.
“In the first phase of the compensation exercise set to start on Feb. 8 investors will be paid a maximum compensation amount of 120 U.S. dollars with the balance payable in the second phase of the compensation process,” Kilonzo said. The compensation process is expected to run for the next six months with effect from Feb. 8 up to August and all genuine claimants are expected to have presented their claims within the set period. The authority will compensate up to a maximum of 600 dollars per claim.
“This compensation should inject optimism and enhance investor confidence in our capital markets,” Kilonzo said. Under the agreement with the Co-operative Bank of Kenya, the bank will be the central coordinator for investor compensation services including free opening and maintenance of bank accounts for purposes of customer identification and verification, processing and facilitating the transfer of funds, receiving claim forms from the clients and forwarding the claim forms to CMA for processing and approval for payment.
Last year, CMA compensated almost 90 percent of investors who had invested through another collapsed stock brokerage company, the Nyaga Stock Brokers, helping further to assuage small investors that they will not lose all their money in case a brokerage company collapses. Discount Securities was placed under the statutory management in early 2009 although a statutory manager was not appointed until July 2010. Earlier investigations by the audit company KPMG found that the company was insolvent and could not meet its financial obligations to clients and creditors. (Xinhua)
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