Central Depositories Act

The Act's short title is "Central Depositories Act."

Section 2(2) defines "writing" to include any mode of representing or reproducing letters, figures or marks in a visible form.

Central depository must ensure orderly dealings in immobilised or dematerialised securities; it may direct issuers or central depository agents, who must comply; failure to comply is an offence punishable by a fine up to five million shillings or imprisonment up to five years, or both.

If a central depository agent deposits property as market collateral with a central depository in accordance with its rules, no civil or criminal action, claim or demand about rights in that property may be brought against the central depository or its nominees.

Central depository agents, issuers, depositors and users must comply with, enforce, or give effect to the CDS rules as they apply to them.

Central depositories must provide the Authority with assistance reasonably required for performance of its functions; the Authority is entitled at all reasonable times to full and free access to any part of a central depository's premises to ensure compliance with the Act.

Central depository may discipline its agents; must notify the Authority within seven days of such action; the Authority can review and may itself take disciplinary action, giving affected parties an opportunity to be heard.

The Authority must take such measures as are necessary to ensure that the provisions of this Act are complied with.

Persons are prohibited from establishing, maintaining or representing that they maintain a central depository unless they have the prior written approval of the Authority under section 5; contravention is an offence punishable by a fine up to ten million shillings, imprisonment up to ten years, or both.

Companies proposing to operate a central depository must apply in writing to the Authority to be licensed and submit required CDS rules, the prescribed fee and other prescribed information; the Authority may require further information, must assess fitness and propriety, and central depositories must seek prior approval before altering submitted particulars.

The Authority must give a person an opportunity to be heard before deciding whether that person is fit and proper under this Act.

The Authority must give a person an opportunity to be heard before declining to grant a licence.

Central depositories must submit their rules to the Authority for approval; licensed central depositories must not change rules without prior Authority approval; the Authority may direct other matters.

If a central depository starts a default process, all subsequent actions taken under its rules for settling the defaulter's market contracts shall be treated as taken under the default rules.

A certificate from the central depository stating the net sum payable is sufficient proof of that net sum for the purposes of subsection (2).

The Authority may publish the contents of a report received under subsection (2) for the attention of creditors, in any manner it considers appropriate.

Boards of approved central depositories must send proposed rule amendments to the Authority for approval; the Authority must notify its decision within thirty days; central depositories must seek prior approval before altering particulars in their application.

The Authority may, after consulting the central depository, amend the CDS rules by written notice specifying amendments and their commencement dates, notwithstanding any other written law.

Section 8 lists duties of a central depository, including establishing and operating centralised securities facilities; ensuring fair, transparent and efficient depository, clearing and settlement arrangements; safe custody and anti-falsification measures; tracing and recording systems; seeking approval for fees; prudent risk management; acting in investors' and public interest; following Authority-approved rules; ensuring agent compliance; maintaining adequate premises, personnel and approved automated systems; preserving confidentiality subject to specified disclosures.

No person may act or hold themselves out as a central depository agent unless duly appointed; appointed agents must perform approved CDS functions and, when required, provide information or documents to the central depository or the Authority; the Authority may make rules regulating agents and impose duties or sanctions.

A securities exchange may prescribe immobilisation of listed or proposed securities after consulting the central depository, and must give public notice (per CDS rules) of eligible immobilised securities; deposits with an agent are deemed deposits with the central depository.

Central depositories (or their agents) must lodge deposited certificates and instruments with the issuer; the issuer must register transfers in the depository's name unless exceptions in subsection (3) apply; within two market days the issuer must notify and deliver the certificate; the section does not apply to bearer securities.

During the transitional period central depositories or their agents must accept certificates for immobilisation to settle trades under the CDS rules, no person may trade eligible securities on an exchange without a securities account, and certain agents and issuers must comply with sections 14(2)–14(8).

After the transitional period, no person may trade or transfer any eligible security on a securities exchange unless they hold a securities account.

After the immobilisation date, no person may trade an eligible security on an exchange unless it has been deposited with a central depository; an eligible security may be deposited by a depositor with the central depository (subject to fees under the CDS rules).

A central depository may set a date after which exchange members cannot receive certificates for safe custody, and must notify the public of that date.

A central depository and its agent are liable to a depositor for loss, damage or liability from disappearance, loss or destruction of deposited certificates caused by their wilful act, omission, neglect or default; but a central depository agent is not liable for certificates whose transfers are not registrable under section 14, except where exchange rules oblige the agent to effect a buying in after a refusal to register.

Deeming provisions

A depositor may apply to the central depository to withdraw an immobilised security standing to the credit of their securities account, subject to section 22 and this section; a central depository or its agent remains subject to any obligation (under written law or exchange rules) to notify the securities exchange of such transfer.

No person may trade a security withdrawn from a central depository on a securities exchange unless that security is redeposited in a central depository.

No person may withdraw a security prescribed as a dematerialised security from a central depository; a securities exchange may, after consulting the Authority, restrict or prohibit withdrawal of listed or quoted immobilised securities for such period and in such manner as it considers appropriate.

Central depository may prescribe certain immobilised or proposed-listed securities as dematerialised; a notice must identify the security and specify a dematerialisation date.

Section 25 requires surrendering physical registers and providing holder information to the central depository, specifies required record content for immobilised securities, exempts bearer securities, and states the central depository is not the issuer's agent for registration services.

Issuers must not issue certificates for dematerialised securities after the dematerialisation date.

Section 27 maps certain Companies Act references to central depository records for dematerialised securities and excludes Section 505 for dematerialised securities.

The register of any collective investment scheme means the record of depositors maintained by the central depository.

The CMA has the power to make rules for dematerialised securities to replace physical registers with book-entry records in specified cases.

No person shall deal in book-entry securities unless such person holds a securities account.

Allows beneficial or legal owners to appoint an authorized nominee in writing to open securities or omnibus accounts; authorized nominees may deposit securities and must declare the beneficial or legal owner; contravention is an offence with fines or imprisonment.

Authorized nominees must keep and maintain records of beneficial and legal owners and related securities accounts as prescribed; authorized owners must furnish the central depository with required information on request; contravention is an offence with fines or imprisonment on conviction.

The central depository must issue statements of account for book-entry securities to depositors; depositors may request statements by written notice; on notice and payment of charges the central depository must issue the requested statement; such statements are prima facie evidence of the matters they specify.

The central depository has a duty to keep records of all transfers of book-entry securities to and from a securities account.

Central depositories must have their operations independently audited each financial year, appoint an independent auditor, and inform the Authority; the auditor has specified access and reporting entitlements including submitting a report within ninety days of appointment.

A central depository and its agents must preserve all records and accounts for seven years, even if they stop business before the seventh year ends.

If a person pays the specified amount to the Authority within fourteen days after the order, proceedings will not be taken against them for the offence.

The Director of Public Prosecutions may, on the Authority's request, appoint an officer of the Authority or an advocate of the High Court to act as a prosecutor for offences under this Act.

Central depositories must maintain insurance policies (including specific coverage determined by the depository) and notify the Authority and agents of any reduction; the Authority or its agents may inspect policies.

Officers, employees and agents of the central depository are exempt from being sued in court for acts or omissions done in good faith in the intended exercise of powers or duties under the Act.

The Authority may, from time to time, make CMA rules necessary or expedient to carry out the objects and purposes of the Act.

When applying the Companies Act to a book-entry security, the term "allottee" in that Act means a depositor who is deemed under section 37 of this Act to be a member or debenture holder of the company making the allotment.

When a notice is required under Part III, it must be published in at least three national daily newspapers (one in Kiswahili and two in English), once a week for three consecutive weeks.

A depositor's book-entry security transaction must be evidenced or effected by an entry in the depositor's securities account.

Entries in securities accounts made directly by a central depository are deemed made by or with its authority; entries made through a central depository agent are deemed made by or with the agent's authority. A record of such an entry in respect of a transaction in book-entry securities is prima facie evidence of the matters recorded.

Issuers may request from the central depository a record of depositors by written notice; the central depository must provide and maintain that record (including specified depositor details) under CDS rules and data protection principles; members may inspect for free while others may inspect on payment; copies may be requested and must be supplied by the issuer within 21 days or a longer reasonable period.

A depositor whose name appears in the record of depositors for a book-entry security is entitled to the same rights and privileges and is subject to the same liabilities and obligations as if they were a registered member or debenture holder.

Central depositories are prohibited from, as principal, purchasing, acquiring or otherwise dealing in book-entry securities except as permitted by the Authority under CMA rules made under this Act.

Issuers or offerors must state in the prospectus when a security is prescribed to be immobilised or dematerialised; after allotment they must confirm successful applicants with and deliver certificates to the central depository; the central depository must open accounts for successful applicants without accounts.

A prospective allottee must open a securities account in his name before acquiring any securities under subsection (1).

A person who intends to underwrite a security proposed for listing on a securities exchange or to underwrite a rights issue for a book-entry security must open a securities account.

Section 42 sets rules for creating, registering and releasing security interests in book-entry securities: the chargee must create the security interest; the central depository agent must register the instrument; on receipt of written notice from the chargee the central depository or its agent must transfer the security back to the chargor; floating charges are excluded.

The central depository may restrict transfers, charges or mortgages of securities in suspense and may restrict book-entry transfers when prescribed circumstances or instructions under the CDS rules arise.

The default process of a central depository takes precedence over laws of insolvency.

Central depositories and their agents must take reasonable measures to protect depositor information and documents relating to securities accounts from unauthorised access.

Directors, officers, employees, agents of a central depository (and others with access to depositor information) must not disclose depositor information; anyone who receives information disclosed in breach of that rule must not further disclose it; contravention is an offence punishable by a fine not exceeding five million shillings or imprisonment for up to five years, or both.

A central depository agent that is a bank or financial institution must not reveal or disclose any information or document to any person in contravention of the Banking Act, except as provided in section 9(4) of this Act.

Permitted disclosures of depositor information are enumerated (various specific cases listed).

Regulates who may access a central depository's computer system; allows the central depository to give access to specified parties; authorises the Authority to set access rules; makes unlawful access or interference an offence punishable by a fine up to ten million shillings or imprisonment up to ten years, or both.

Relates to falsification of records or accounts.

Destroys, conceals, mutilates or alters any record or account required to be kept or maintained under any of the provisions of this Act.

Anyone convicted under this section is liable to a fine not exceeding five million shillings, or to imprisonment for up to five years, or both.

Directors, executive officers and the secretary of a body corporate are to be treated as having committed any offence by the body corporate unless they prove lack of consent/connivance and that they exercised all due diligence to prevent it.

Persons who contravene or fail to comply with this Act commit an offence and, if convicted where no penalty is specified, may face a fine not exceeding five million shillings, imprisonment for up to five years, or both; persons convicted are also liable to pay compensation to victims, with market-wide losses attracting payment equal to the profit made into the Compensation Fund.

Unless the Part specifically provides otherwise, no provision authorises the Authority to investigate the business of a licensed person or its representatives under the Capital Markets Authority Act (Cap. 485A).

The Authority may require production of records or accounts from specified persons and may take possession, copy, require explanations, retain, and permit access to such records; persons must comply or face fines.

Gives the Authority power to enter certain premises to inspect, operate or search computer systems and other receptacles and to seize or secure records and material as evidence.

Obstructs or hinders the Authority in the exercise of its powers under section 55 or section 56.

The Authority may require disclosure of information from central depositories, agents or depositors about acquisitions or disposals of book-entry securities; failure without reasonable excuse is an offence punishable by fine up to ten million shillings or up to ten years' imprisonment or both.

If the Authority has reason to suspect someone has committed or is about to commit an offence under this Act, the Authority may investigate.

The Authority has emergency powers to alter settlement and delivery conditions, set emergency margins, modify depository rules and take other actions to maintain or restore fair, transparent and efficient clearing and settlement when an emergency exists or to protect investors.

The Authority may issue general or specific directions to a central depository for specified purposes including ensuring fair, orderly and expeditious clearing and settlement, managing systemic risk, or protecting the public or investors.

The Authority may appoint an auditor (in writing) to examine a central depository's books and systems if it is satisfied it is in the public interest; the central depository must pay the auditor's expenses.

The Authority may revoke a central depository licence for listed grounds, must give the depository an opportunity to be heard before revocation (except when responding to a request under subsection (1)(h)), and must publish any revoked licence in the Gazette; a central depository is considered to have ceased operation if it does not operate its facility for more than thirty days without prior approval.

Addresses the effect of a revocation on agreements, transactions or arrangements entered into before the revocation.

The High Court may make various orders (including restraining persons from acting as central depository agents or dealing in specified book-entry securities, directing acts or restraints, and ancillary orders); it may direct notice or publication before making such orders; failure to comply is an offence punishable by a fine not exceeding five million shillings or imprisonment for up to five years or both.

A central depository must, as a condition of its licence and subject to the Authority's approval, establish arrangements guaranteeing settlement of all securities transactions through its system.

A central depository may establish a Central Depository Guarantee Fund to settle trades; central depository agents must pay a variable risk-based contribution determined by the central depository in consultation with the Authority.

A central depository must manage the Fund as a separate fund, disclose it in its annual balance sheet, keep proper accounts and records, prepare an annual statement of accounts showing the Fund's financial position, have those accounts include all sources of income, expenses and investments, have them audited by its appointed auditor, and make rules for the Fund's operation and maintenance.