Stockbrokers are falling at the rate of almost two a year, and tales continue to abound.

The reality is that, sooner or later, you may need to change your broker and while I’ve had this post for over three years about how simples the process of transferring shares from one broker to another should be, the reality is very different!

Kenyan shareholders have had the option not having share certificates for a few years now. With a central depository system (CDS), you surrender your share certificates e.g 1,000 Kenya airways (KQ), and in exchange get an electronic account/statement which is updated each time you buy or sell, shares. You also get all your dividends and annual reports by mail.

Still to buy and sell shares you have to go through a stockbroker, who ideally should have the same tally as your CDS statement. Recently problems have been had with rogue brokers, who would sell share without informing clients – and clients would only find out when they got a CDS statement showing less shares than what the broker said they had. Later the frauds went even further when brokers would ensure that even CDS statements didn’t get up-to-date records of share sales.

I had to change broker for a company account this week and the reality was much more than. I had a team of people, the transfer was between two viable brokers and we were able to get all the (numerous) documents that were asked for. Yet it still involved almost a dozen trips to the office and took almost two weeks.

The steps taken included
(i)Open an new CDS account with new broker
(ii)Close old CDS account with old broker
(iii)Move shares from old to new CDS account

Documents that were asked for included
– 3 copies of Certificate of incorporation with – one stamped by old broker, one stamped by new broker, one for the CMA (all stamped by company seal)
– Memorandum & articles of association requested by new broker (was not required at old broker so copies had to be traced and photocopied)
– 3 copies of director ID or passports – stamped by old broker, stamped by new broker, one for to the CMA (all stamped by company seal)
-2 copies of form of shares being transferred one called CDS 4A and one called CDS 4B, signed by directors and stamped with company seal. One form must be stamped by old broker, one stamped by new broker
– 200 shillings ($2.50) transfer fee

Now imagine what it is like trying to reconcile accounts, reclaim investments or move from a collapsed stockbroker? Or a fraudulent one? Or one who doesn’t have motivated (paid) staff, or proper records?

Also until last year, IPO’ were considered sure winners – and people would open several accounts e.g. in the name of their mother, grandmother, cousin, maid, driver etc, all in a bid to get more shares after the fractional allocation that characterized Kengen and Safaricom IPO’s, but before the price rocketed up on day one. Many CDS accounts were opened, many by new temporarily hired staff in a bid to get as many applicants in as possible during the limited (IPO’s usually 2 -3 weeks) and some rules were readily relaxed. I explained these to the new broker, but they said CMA can come and audit their files and they have to comply CMA have their hands full with collapsing or non-compliant stocbrokers!

So, finally, the new account is now open, after a very tiring two weeks, during which I confessed that it was maybe better to sell all the shares held at old stockbroker and open a new account at new stockbroker than to attempt to transfer the shares.