This article is an educational explainer about how securities markets generally function. It is not investment advice, and it does not describe any specific current event, company, or security.
In Nairobi, there was once a vault built for something that has since all but disappeared: paper share certificates. For decades, owning a stake in a company listed on the Nairobi Securities Exchange (NSE) meant holding, or trusting a custodian to hold, an engraved piece of paper bearing your name. Today that paper has largely vanished, replaced by an entry in an electronic ledger run by a single institution, the Central Depository and Settlement Corporation (CDSC). Tracing how a share actually changes hands, from the instant a trade executes to the moment it lands in a new owner’s account three business days later, shows how a modern exchange keeps thousands of transactions moving without anyone ever signing a certificate.
From certificates to computer entries
The CDSC is Kenya’s central securities depository, licensed by the Capital Markets Authority and established under the Central Depositories Act to hold and transfer ownership records for shares and other securities traded on the NSE. Its work happens in two stages that are often confused with each other. Immobilization comes first: investors’ paper certificates are physically deposited with the CDSC or its agents, withdrawn from circulation, and locked away, while ownership of those same certificates is thereafter tracked electronically. The paper still technically exists, but it never changes hands again. Dematerialization goes a step further: the certificate is cancelled outright, and the share exists only as a book entry in the CDSC’s electronic register, known as the Central Depository System (CDS). Most actively traded NSE shares today are fully dematerialized, meaning there is no certificate to store at all, only a record.
For an individual investor, this system is reached through a CDS account, opened not directly with the CDSC but through a Central Depository Agent (CDA), typically a licensed stockbroker or investment bank. Each CDS account is tied to one investor and shows, security by security, exactly how many shares that account holds at any given time. When ownership changes, nothing physical is exchanged; the CDSC simply debits one account and credits another.
What happens between the trade and the transfer
A trade on the NSE begins when a buy order and a sell order are matched on the exchange’s trading system. That moment, the trade date, is referred to as T. What follows is a clearing and settlement process, distinct from the trade itself, in which the exchange, the CDSC, brokers, and settlement banks confirm exactly what is owed and by whom. Kenya’s equity market operates on a T+3 settlement cycle, meaning the actual exchange of shares for cash is completed three business days after the trade date, not on the day the trade is agreed.
During those three days, the trade is confirmed and matched between the buyer’s and seller’s brokers, obligations are calculated, and instructions are queued for final settlement. This gap exists because clearing and settlement require verifying that the seller genuinely holds the shares in a CDS account and that the buyer’s funds are available, before an irreversible transfer takes place.
Shares and cash moving together
The mechanism tying the two sides of a trade together is called delivery versus payment (DvP). Under DvP, the transfer of shares out of the seller’s CDS account and the transfer of cash on the buyer’s side are linked so that neither happens without the other. This is designed to prevent a situation where one party delivers its side of the bargain and the other fails to reciprocate. On settlement day, the CDSC’s system and the settlement banks involved exchange confirmations, and the two legs of the trade, securities and cash, are completed essentially at the same time.
At the close of the T+3 cycle, the CDSC updates its electronic register: the seller’s CDS account is debited for the shares sold, the buyer’s CDS account is credited with the same shares, and the corresponding cash moves through the banking system to the seller. From the investor’s vantage point, the entire exchange has taken place without paper, without a physical signature, and largely without visibility into the machinery behind it, just a change in the number sitting in a CDS account.
