Thread by @pesa_africa

Looking at Kenya's Capital market transition from paper share certificates to > immobilized electronic record form to > de-materialized form housed by the Central Depository Service Corporation (CDSC) has some lesson for transition physical records and assets to blockchain 1/

First here is a list of Financial Intermediaries in Kenya's Capital Markets /2

Second, here is a list of participants involved in the Clearance and Settlement of Securities in Kenya 3/

So the The Central Depository & Settlement Corporation Limited (CDSC) was incorporated on 23rd March 1999 to establish and operate a system for the central handling deliveries and settlement of securities in the Capital Markets in Kenya 4/

There was good reason to want to transition from paper share certificates to electronic form. Likely quantifiable benefits

These were some of the disadvantages of share certificates 5/

The CDSC was tasked to establish and operate a central depository system
and a central depository initially in Kenya in respect of securities listed on the Nairobi Securities Exchange. also charged with management of daily delivery and settlement of transactions at the NSE 6/

The CDSC is a limited liability Company approved by the Capital Markets Authority under Section 5 of the Central Depositories Act, 2000

Central Depositories Act (link) nse.co.ke/regulatory-fra… /7

In November 2004, the immobilization of securities bagan in a phased approach. .. from that date, the certificates shld be surrendered and replaced with an electronic record of holdings referred to as a book entry security /8

By June 16th 2012, the immobilization of securities stood at 80.95% of the free float of shares has been immobilized

But what is immobilization? /9

What is immobilisation?

"a process whereby securities are converted into electronic data and stored in computers by a depositor

(paper) share certificates are surrendered, physical paper is cancelled and an investor depository account is created and credited with value " /10

This was only half the process b/c under immobilzation, the paper share certificate is still recognized as prima facie evidence in court as evidence of ownership

So a next step is required to add full property rights to electronic format

Here is the difference /11

Under Dematerialisation, physical certificates no longer exist, no longer recognized as legal evidence of ownership

The CDSC is thus an electronic book entry system to record and maintain securities and register their transfer

Full ownership changes electronically

/12

JULY 18 2013: CDSC marks a total of 87.95 per cent of the free float of shares immobilized and 54.34 per cent of the total market capitalization immobilized, representing a value 938.6 billion as at that date 13/

Dematerialisation of securities is prescribed by CDSC
under section 24 of the Central Depositories Act, whereby the underlying physical certificate is no longer prima facie evidence of ownership under the Companies Act Cap 486 on or after the dematerialization date /14

"The process of dematerialization commenced in 2012 with stakeholder consultations,workshops and trainings and close in November 2013." /15

This whole process lasted from 1999 - 2014 - 15 years total

Required a new Act
a new body
Aligning interest of all stakeholder
Transition

This is what we will have to do for digitizing physical assets on a DLT

even more problematic for contentious assets /16

One of the blockchain narratives is essentially this

How to dematerialise assets and securities and certificates at scale ( beyond the limits of Kenya and geography) ie for the web economy

what people call 'tokenization' /17

The other blockchain narrative is cryptoassets and cryptocurrencies.

Assets that are already digital native. No need to go through the processes described above.

Much simpler actually /18

We are more likely to see mainstream cryptcurrency / cryptoassets adoption in mainstream finance

before we see tokenized land assets

b/c crypto assets are already digitally native

Take this to the bank! /19

This is also a way to think about private versus public blockchains

If you're going to build a private one, you have to convince everyone else to join at national level ,regional level, continent level, international and the web /20