Clearing and Settlement Directive 2024

SCHEDULE (para. 6(2)
MINIMUM CONTENT OF A SECURITY LENDING AND BORROWING AGREEMENT (a) Particulars of the lender. (b) Particulars of the borrower. (c) Particulars of the security to be lent. (d) Number of securities to be lent. (e) Acceptable equivalent security for paying back the loan. (f) Agreed value of the security to be lent for the purposes of the transaction. (g) Terms and conditions of the transaction. (h) Method for calculating lending fee and rebate. (i) Payment schedule for lending fee and rebate. (j) Nature and value of collateral for the lending. (k) Transfer of title and interest in the security to be lent. (l) Transfer of title and interest in the collateral provided. (m) Methodology for revaluation of collateral provided. (n) Particulars of the person responsible for revaluation of collateral. (o) Margin attached to the lending and borrowing transaction. (p) Nature and consequence of default or other failure in relation to the terms of the lending agreement. (q) Exercise of voting rights associated with the security to be lent. (r) Exercise of voting rights associated with collateral, where the collateral is a type of security that has voting rights associated with it. (s) Procedure for recalling or returning the lent security. Issued this 1st day of May, 2024. DR. W. T. BANDA (REF. NO. FIN/PFSPD/02/12) Registrar of Financial Institutions GOVERNMENT NOTICE NO. 35 SECURITIES ACT (CAP. 46:06) SECURITIES (CLEARING AND SETTLEMENT) DIRECTIVE, 2024 IN EXERCISE of the powers conferred by section 67 (1) of the Securities Act, I, DR. WILSON TONINGA BANDA, Registrar of Financial Institutions, issue the following Directive— 178 24th May, 2024

PART I__PRELIMINARY

1. This Directive may be cited as the Securities (Clearing and
   Settlement) Directive, 2024.
2. In this Directive, unless the context otherwise requires—
   “beneficial owner” means a natural person entitled to receive some or all of the benefits of ownership of a security or other financial instrument; “buying broker” means a securities broker acting for a buyer; “central securities depository” means a company licensed by the Registrar to— (a) establish and operate a system for the central handling of securities— (i) where securities are deposited and held in custody by, or registered in the name of, the company or its nominee company for depositors and dealings in respect of these securities are effected by means of entries in securities accounts without the physical delivery of certificates; and (ii) which permits or facilitates the settlement or registration of securities transactions or dealings in securities without the physical delivery of certificates; and (b) provide other facilities and services incidental to those provided under clause (a); “dematerialization” refers to conversion of physical share certificates to a paperless computerized form; “depository” means a central securities depository licensed by the Registrar; “exchange” means a stock exchange and a commodities exchange licensed under the Financial Services Act; “individual investor” means any other investor other than institutional investor; “institutional investor” means large organizations which make substantive investments on the stock exchange, and include investment managers, pension funds, mutual funds, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds and finance companies; “operational procedures” means the procedures adopted by the central securities depository from time to time; “selling broker” means a securities broker acting for a seller; “settlement” means an act that discharges obligations in respect of funds or securities transfers between two or more parties; 24th May, 2024 179 Citation Interpretation Cap.44:05

“settlement bank” means either a central bank or private bank used to effect money settlements; “settlement date” means the date on which the parties to a securities transaction agree that settlement is to take place; “settlement obligation” means an amount due from a financial institution to other financial institutions as a result of the clearing process; “settlement institution” means an institution across whose books transfers between participants take place in order to achieve settlement within a settlement system; and “settlement system” means a system used to facilitate the settlement of transfers of funds or financial instruments. 3.—(1) This Directive shall apply to a depository, securities broker, securities dealer, securities market intermediary, securities representative and exchange licensed under the Financial Services Act.
4. The objective of this Directive is to prescribe standards for clearing
and settlement of securities transactions.
5. An exchange shall ensure that its members comply with this
Directive.
6.—(1) A security deposited into a depository shall be held in custody by the depository, in trust for the beneficial owner. (2) A transfer of security into a depository by a depositor shall not convey any transferor’s beneficial interests over the security deposited. (3) The beneficial owner of a security shall be entitled to all rights and benefits and be subjected to all liabilities in respect of the security held by the depository. 7.—(1) A person shall open an account with a depository where that person intends to transact in a listed security. (2) The process of opening an account referred to in subparagraph (1) shall comply with the rules and procedures prescribed by the depository. 8.—(1) The trading of securities in physical form is hereby prohibited. (2) Where dematerialization of securities is required, the process shall conform with the rules of the depository. 9.—(1) An individual buyer shall, in the case of a buy order, make an advance payment of one hundred percent of an approximate value of trade to a buying broker at the time of placing the buy order. (2) An institutional investor, shall, in the case of a buy order, make an undertaking to make payment to a buying broker on production of a contract note. 180 24th May, 2024 Application Cap.44:05 Objective Obligation of an exchange Security to be held in custody Account with depository Physical trading of securities Advance payment

(3) An institutional investor shall make the payment referred to under subparagraph (2), by electronic bank transfer, immediately on receipt of a contract note from the buying broker. 10.—(1) A broker or dealer shall appoint a settlement bank through which the broker shall settle transactions. (2) A broker or dealer that participates in a settlement shall enter into an agreement with the settlement bank, for the purpose of settling transactions executed at the exchange.
11. Any trade in eligible securities shall be cleared and settled through
a depository.
12.—(1) A depository shall submit—
(a) to the Registrar—
(i) a register of securities and movement of securities report on a weekly basis and upon request; and (ii) a settlement transactions report on a monthly basis; and (b) to the exchange where the trading took place, a trade settlement report on a monthly basis. 13.—(1) A settlement of a listed security shall be affected by T + 3 as indicated at the date and time of trading. (2) Upon settlement of a transaction, the seller’s depository account shall be debited with the eligible securities being the object of the transaction and the selling broker’s settlement account shall be credited with the corresponding payment thereof. (3) Simultaneously, the buyer’s depository account shall be credited with the securities being the object of the transaction and the buying broker’s settlement account shall be debited with the corresponding payment thereof. 14.(1) All net funds payment obligations arising on the settlement date shall be effected and settled through the settlement bank, at the time and settlement date, as prescribed in the operational procedures of the depository. (2) The settlement referred to in subparagraph (1) shall be effected through the crediting and debiting by the settlement bank of the respective settlement account of the brokers or dealers based on the net position of each broker, as a result of the settlement.
15. Upon settlement of the eligible securities and payment therefor,
title to the securities shall transfer on settlement date and the transaction shall be final and irrevocable. 16.(1) A broker or dealer shall not be permitted to attach any condition or restrictions on the settlement of transactions. (2) Any conditions and restrictions that are imposed contrary to this Directive, operational procedures or applicable laws shall be void. 24th May, 2024 181 Settlement bank Settlement and clearing Submission of reports Settlement and delivery Prescribed time of settlement Transfer of title Restrictions on settlement

17.—(1) Where delivery of securities fail, a broker shall engage free-of￾payment procedures as prescribed under the operational procedures of the depository. (2) In the instances where a settlement failure occurs, the settlement guarantee fund procedures shall be instituted as set out in the operational procedures of the depository. 18.—(1) Notwithstanding anything under this Directive, in the circumstances where a terminal at a broker premises is down or disconnected or where any part of the computer system has failed for any reason, it shall be the responsibility of the broker to notify the depository, immediately by telephone and in writing or by other means to convey the relevant information required. (2) A depository shall, immediately, notify any broker who may be affected by a failure of which the depository is aware. (3) A depository shall, at all times, ensure that there is adequate back up facilities in order to secure depositors data and that its operations shall resume without unreasonable delay in the event of a computer failure or other disruption of any kind. 19.—(1) A buying broker and selling broker shall, at the latest, issue contract notes to their clients on the day following the day of trade execution. (2) A buying broker shall be responsible for making good the settlement of all securities transactions even where the buyer defaults in making payments. (3) A buying broker shall, at the latest, pay the selling broker by the third day following the day of trade execution. (4) The selling broker shall, at the latest, pay the seller by the third day following the day of trade execution. (5) A payment under this paragraph shall be made in the name of the holder of the security. (6) All payments to third parties by securities broker or dealer are prohibited, except where— (a) letters of administration are granted by a court; or (b) where a valid power of attorney is given by the holder of securities.
20. A broker shall, on a monthly basis, submit to the Registrar, a
summary of trading activities, indicating trade date and payment date of every executed transaction. 21.—(1) A broker who contravenes a provision of this Directive shall be liable to pay to the Registrar, a monetary penalty of seventy-five per cent of the commission earned on the transaction that is subject of the violation. (2) In addition to a monetary penalty in subparagraph (1) above, the Registrar may impose a monetary penalty of up to K50,000,000. 182 24th May, 2024 Failure of delivery System failure Contract notes Reporting Monetary penalties

(3) The penalties in subparagraphs (1) and (2) shall be paid through an electronic bank transfer in favour of the Reserve Bank within five working days after notification.
22. In addition to the monetary penalties in paragraph 21, the Registrar
may impose directions or administrative penalties as provided for under the Act and the Financial Services Act.
23. The Securities (Clearing and Settlement) Directive is hereby
revoked.
Issued this 1st day of May, 2024.
DR. W. T. BANDA
(REF. NO. FIN/PFSPD/02/12) Registrar of Financial Institutions GOVERNMENT NOTICE NO. 36 SECURITIES ACT (CAP. 46:06) SECURITIES (MINIMUM STANDARDS FOR OPERATING PREMISES OF SECURITIES MARKET PLAYERS) DIRECTIVE, 2024 IN EXERCISE of the powers conferred by section 67 (1) of the Securities Act, I, DR WILSON TONINGA BANDA, Registrar of Financial Institutions, issue the following Directive—

1. This Directive may be cited as the Securities (Minimum Standards
   for Operating Premises of Securities Market Players) Directive, 2024.
2. In this Directive, unless the context otherwise requires “securities
   market player” includes an exchange, operator of a collective investment scheme, broker, dealer, portfolio manager, transfer secretary, investment advisor and securities market intermediary.
3. The objective of this Directive is to prescribe approval and
   certification requirements for operational infrastructure and operating premises for securities market players.
4. A securities market player shall not operate his business from a
   premises unless the premises is approved and certified in accordance with this Directive.
5. —(1) A securities market player shall not__
   (a) acquire or develop a premises for use as a securities business premises; (b) renovate a securities business premises; 24th May, 2024 183 Administra￾tive penalties Cap.44:05 Revocation G.N. 25/2015 Citation Interpretation Objective Securities market players to operate from approved and certified premises Requirement for, and grant of, prior written approval of the Registrar