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Securities Lending and Borrowing & Short-Selling Regulations expected to enhance liquidity in the capital markets

Nairobi 16 January 2018….The Capital Markets Authority (CMA) has lauded the Cabinet Secretary to the National Treasury for the gazettment of the Capital Markets (Securities Lending, Borrowing and Short-Selling) Regulations 2017, which are expected to facilitate enhanced liquidity in the capital markets.

Speaking while confirming the new development, the CMA Chief Executive, Mr Paul Muthaura said, ‘’Making the Kenyan capital markets highly vibrant and liquid is a key priority for the capital markets industry and the Securities Lending, Borrowing and Short-Selling Regulations are expected to facilitate this’’.

Mr Muthaura further observed that this new development is one of the recommendations of a 2015 World Bank-supported study on the state of liquidity in Kenya which recommended several measures to improve liquidity. Some of the proposals included: introduction of market makers, removal of pre-funding and pre-validation checks, introduction of circuit breakers instead of price bands, Securities Lending and Borrowing (SLB) and Short Selling. Among the key initiatives which the World Bank Report recommended for immediate implementation was the introduction of Securities Lending and Borrowing (SLB) as well as Short Selling.

Mr Muthaura added that the initiative is aligned to the Authority’s mandate of promoting the development of Kenya’s capital market to be an investment destination of choice through facilitative regulation and innovation as anchored in the Strategic Plan (2013-2017) and Capital Market Master Plan (2014-2023). He explained that in the pursuit of this mandate, CMA has been implementing regulatory reforms as well as introducing new products and services aimed at deepening, diversifying and strengthening the securities industry.

Recent developments include the publication of Policy Guidance Notes for Exchange Traded Funds & Policy Guidance Notes for Asset-Backed Securitization; the implementation of a cross-sectoral program on Islamic Finance development and the implementation of a new Code of Corporate Governance Practices among others.

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BACKGROUND INFORMATION

Securities Lending and Borrowing (SLB)

This is the temporary transfer of securities from one party to another, with a simultaneous formal agreement to return the securities at a pre-agreed price either on demand or at an agreed date in the future. Full legal title to the securities is transferred from the lender to the borrower so that the securities can be used entirely as the borrower desires, including selling them onward to others. SLB transactions are governed by the terms of securities lending agreements aligned to terms and conditions as agreed by the parties and in line with international best practice. Lenders and borrowers will always have unique characteristics that cause them to either remain on the borrowing side or lending side. Borrowers are market participants who identify trading opportunities that will more than make up for the lending fee costs. Most borrowers are therefore active market participants who take advantage of price movements. They include market makers, arbitragers, directional short sellers or players in the derivatives and Exchange Traded Funds markets.

Unlike borrowers, lenders are usually institutional investors, particularly pension funds and insurance companies, that are long or medium term investors in the securities. We also have high net worth individual investors whose interest is to grow the value of their portfolios over the medium to long term. They therefore lend securities in order to earn a lending fee and increase the return on their portfolio.

The loaning of securities may be for a fixed term, or at times may be left open so that securities can be recalled by the lender or returned by the borrower as and when necessary. The structure of SLB involves three parties i.e. the lender, lending agent and the borrowers. The impetus to lend securities stems from a desire to increase the financial performance of the funds while creating minimal risk to the funds. Lending agents provide support services to lenders. They maintain a pool of assets available for lending and cut on administrative costs for the lenders. The above set up improves liquidity by unlocking securities to facilitate trades and subsequently increasing the number of transactions.

Under normal circumstances, the securities to be returned by the borrower are not required to be the same, i.e. same registration number, and rather will be what is referred to as wholly equivalent. Wholly equivalent means the returned securities are of equivalent value/maturity or the same number and counter. One critical thing that an effective SLB program needs to address is potential lender’s risk in the event that the borrower fails to return the borrowed securities. Normal practice is therefore that securities lending is always accompanied by collateral from the borrower. The collateral is thus used to mitigate the credit risk between the counterparties. The collateral may be delivered to the lender, or to a person acting as an agent for the borrower, or be maintained within separate accounts by the borrower on behalf of the lender. The collateral is usually in the form of cash or liquid securities.

With regards to the economic interests of the lender, it is important to note that lenders have a medium to long term horizon which is tied to the return on his/her holdings. It is therefore in their interest to ensure that as much as the securities are loaned to the borrower and the legal title transferred to the borrower, they seek to retain the economic interests in the same such as those related to voting rights for equities. Securities loans are therefore constructed in a way to enable the lender continue enjoying all the economic benefits of ownership of the securities, during the period of the loan. That means that even though the dividends and interest are paid to the borrower, the borrower is under obligation to pass them to the lender at an appointed time.

As a consequence of the arrangement, the lenders are equally exposed to investment risks such as rise and fall in the value of those securities as well as default risk by the issuer.

Short Selling

Short selling is a transaction involving selling a financial instrument that the seller does not own at the time of the sale. Normally, the short-seller will “borrow” or “rent” the securities to be sold, and later repurchases identical securities for return to the lender. SLB and short selling are a complementary pair. While short selling facilitates trade, securities lending and borrowing ensures settlement. Without short selling, an investor’s activities are pegged and limited to the size of their asset holding. This implies that even when demand prevails, the degree to which they take advantage of that demand is limited.

Short-sellers profit from a decline in the price of the financial instrument. Short selling or “going short” is contrasted with the more conventional practice of “going long”, which occurs when a financial instrument is purchased with the expectation that its price will rise. This is the current option in the Kenyan capital markets for both equity and debt markets which ultimately restricts the benefit of market activity to when the market is only moving in one direction. Typically, being “long” is a way of saying that you own a positive number of the securities while being “short” is where you own a negative number of the securities. If the security price rises, the short seller loses by having sold them for less than the price at which he later has to buy for return to the lender. The practice is risky because prices may rise without bound, even beyond the net worth of the short seller. The act of repurchasing a shorted security is known as “closing” a position or “covering”. There are some costs involved in short selling, notably that the lender charges a fee for loaning out its securities, but in an ideal world the shorter may still stand to make substantial profits where he has planned appropriately. The process generally relies on the fact that securities are fungible, so that the securities returned do not need to be the same securities (i.e., the same registration numbers) as were originally borrowed.

Capital Markets Authority

The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence. The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest. For more information, please contact Capital Markets Authority Head of Corporate Communications, Antony Mwangi on amwangi@cma.or.ke.

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CMA CEO GETS INTERNATIONAL RECOGNITION-

Nairobi September 20, 2017……The Capital Market Authority (CMA) Kenya’s Chief Executive, Mr. Paul Muthaura, has been elected the Vice Chairman of the Growth and Emerging Markets Steering Committee (GEM), representing the interests of over 75 percent of the membership of International Organization of Securities Commissions (IOSCO). GEM covers emerging markets including the BRICS, frontier and nascent capital markets with many of its members showing significant potential for economic growth in the long-term. The GEMC also includes 10 representatives to the G-20, which it works with intensively together with theFinancial Stability Board (FSB), towards the global regulatory reform agenda.

The election as the Vice Chairman of GEM adds another prestigious feather to Mr. Muthaura’s cap, being an elevation from his current position as the Vice Chair of the Africa Middle East Regional Committee (AMERC) of IOSCO. He further continues to serve on the IOSCO Board, to which he was elected in September 2014.

Kenya has been recognized as a leading voice in articulating policy concerns unique to emerging markets and developing economies and is fast gaining recognition as a reference point in discussions around technology innovations within the financial services sector globally.

Commenting on the recent appointment, Mr. Muthaura said; “The appointment is a welcome opportunity for Kenya to take a leadership position in the growth and emerging markets space and play a pivotal role in influencing policy discussions and global regulatory standards at the IOSCO Board level’’.

Mr. Muthaura added that his election as the GEM Vice Chair, cements Kenya’s position as a thought leader, given the major strides the country has made in transforming the capital market landscape by facilitating a robust legal and regulatory framework and introduction of new products, which serves to enhance issuer and investor confidence, while encouraging innovation.

Mr. Muthaura stands out among regulators in the growth and emerging markets for his role in spearheading the implementation of key reforms in the capital markets in Kenya, which have facilitated accelerated innovation and growth. Some of the key innovations include; the introduction of  principles-based approval regime for new products and services; the rollout of Global Depositary Receipts and Notes, Exchange Traded Funds, Real Estate Investment Trusts, and Exchange Traded Derivatives; and the overhaul of Kenya’s  Corporate Governance framework.

The recent appointment adds impetus to Mr. Muthaura’s role in developing practical solutions at GEM, AMERC and Board level in IOSCO to mitigate the unintended consequences of global regulatory reforms on emerging and frontier markets, strengthening Africa’s voice in the Financial Stability Board and the G-20 work-streams related to capital markets issues and fostering new approaches to capacity building by leveraging expertise within the membership.

The appointment of Mr. Muthaura comes against the backdrop of continued implementation of the Capital Market Master Plan (2014-2023), the industry’s 10-year blueprint, designed to bolster industry efforts to ensure that Kenya attracts local and foreign interest and investment.

This has seen the introduction of new products and pursuit of ambitions to list 3-4 companies annually to broaden and deepen the capital markets in Kenya as Nairobi seeks to be established as an International Financial Centre.

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BACKROUND INFORMATION ON GROWTH AND EMERGING MARKETS COMMITTEE (GEM)

The Growth and Emerging Markets Committee (GEM) is the largest Committee within IOSCO, representing over 75 percent of the IOSCO’s ordinary membership. Mr. Ranjit Ajit Singh, Chairman, Securities Commission, Malaysia, and Vice Chair of the IOSCO Board, is the Chair of GEM. The Committee seeks to promote the development and greater efficiency of emerging securities and futures markets by establishing principles and minimum standards, providing training programs and technical assistance for members and facilitating the exchange of information and transfer of technology and expertise.

GEM comprises 88 members and 19 non-voting associate members who include the world’s fastest growing economies and 10 of the G-20 members. Emerging economies are expected to represent a growing portion of IOSCO membership as new members continue to join.

IOSCO is the only international standard setter that has a Committee solely responsible for emerging market issues. This inclusiveness increases IOSCO’s effectiveness and positions it to play a bigger part in shaping the global regulatory framework: IOSCO has been allocated an extra seat at the Financial Stability Board Plenary for the Chairman of the GEM. The GEM also has a seat on the IFRS Foundation Monitoring Board.

The Africa/Middle East Regional Committee is one of the four regional committees constituted by IOSCO to focus on regional issues relating to securities regulation in the Africa/Middle East Region. The Committee is chaired by Mr. Mounir Gwarzo of the Securities and Exchange Commission of Nigeria and has 24 members from markets ranging from Financial Services Board South Africa, the Dubai Financial Services Authority, Capital Markets Authority Saudi Arabia, the Egyptian Financial Supervisory Authority and the West Africa Monetary Union.

BACKGROUND INFORMATION ON THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS (IOSCO)

The International Organization of Securities Commissions (IOSCO) is the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation. It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda.

BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY

The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.

The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest. For further press information, please contact: Antony Mwangi, Head of Corporate Communications, on Email: amwangi@cma.or.ke

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“Calling on Exhibitors’’: IT’S EPIC, DIVERSE AND BETTER THAN EVER BEFORE

Are you an institution or stakeholder in the capital markets and want to increase your institutions public reach and profile?

Do you want to interact with over 10,000 potential and current investors?

First Time Ever in Kenya !!

THE CAPITAL MARKETS WEEK 2017

“Calling on Exhibitors’’

IT’S EPIC, DIVERSE AND BETTER THAN EVER BEFORE

The Capital Markets week is a week-long event organized by the Capital Markets Authority in partnership with capital markets industry stakeholder; The weeklong event includes several concurrent initiatives countrywide during the same week that will culminate into the Capital Markets Open day.

The initiatives will run from May 3rd, 2017 to May 6th, 2017 and a Capital Markets Open day at the Kenyatta International Convention Centre, Tsavo Ballroom.

The event targets participants from business and professional communities, the County Government as well as the General Public within various regions of Kenya, Nairobi County and its environs.

The week’s objective is to create an environment where current and potential investors and Issuers may interact with various capital market Intermediaries and listed companies to receive pertinent information that will assist them to make informed decision while participating in the capital markets industry. The event is also intended to give exhibitors an opportunity to market their products and services to the public.

Exhibitors will have an opportunity to: –

  • Interact with current and potential investors on one on one basis.
  • Provide information on their institution’s products and services.
  • Interact with other institutional investors.
  • Participate in the Open Day Conferences.
  • Increase the image and visibility of their institution

Some of the institutions expected to exhibit at the Open Day during the Capital Markets week include, the Capital Markets Authority, the Central Depository and Settlement Corporation, Listed Companies, Private Equity and Venture Capital Firms, Banks, Fund Managers, Stockbrokers, Custodians, Investment Banks, Investment Advisors among others.

This is a call to All Exhibitors. If you are operating within the Capital Markets sector as a Market Intermediary, listed company or stakeholder and are interested in participating as an exhibitor during this Open Day, kindly contact the Authority through Halkano Huqa or Esther Gitonga on Tel.020 2264900 E-mail: hhalkano@cma.or.keor egitonga@cma.or.ke: Website: www.cma.or.ke

You can book your space based on differentiated participation packages tailored for your needs. Space is limited and it will be on a first come basis.

The Principal Sectretary,Dr.Kamau Thugge officially opening the 4th Annual Capital Markets 2016 Open day, Looking on is Mr.James Ndegwa Chairman of the Capital Markets Authority Board

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CMA initiative to increase listings bears fruit

Nairobi March 17, 2017……In its drive to increase listings on the Nairobi Securities Exchange (NSE), in line with the objectives of the 10-year Capital Market Master Plan (2014-2023), the Capital Markets Authority (CMA) has signed up 70 potential issuers for the Business Incubator and Accelerator on the Listing Experience event. The event is scheduled on 30-31 March 2017.

The CMA Chief Executive, Mr. Paul Muthaura, disclosed during a media briefing that the initiative is aligned to the Capital Markets Master Plan target to increase listings on the Growth Enterprise Market Segment (GEMS) of NSE by 3-4 companies annually. This translates to approximately 40 companies by 2023, creating a solid supply of future Main Board listed companies.

Mr Muthaura observed, “The response from potential issuers is a clear demonstration of the level of interest in the capital markets as a source of long term funding to support growth and business expansion plans for companies in Kenya and beyond’’

Mr. Muthaura said, “The incubator and accelerator experience is intended to give interested companies a realistic and practical feel of the listing process. Interested firms will have an opportunity to participate in a stage by stage, one on one, structured engagement with the CMA, NSE, Nominated Advisors (NOMADS), Transaction advisors, Lawyers, Auditors, Stockbrokers and Investment Banks, among other service providers, to allow for confidential B2B discussions on their readiness for listing’’.

Mr. Muthaura explained that the areas of engagement on the listing process will include: identifying business needs/strategy issues, developing business plans, considerations for the appointment advisors & other agents, mandating negotiation, required documentation, regulatory and other approvals, the process of issue placement and allotment, and fees and timelines.

Mr. Muthaura added, “In addition to the Business Accelerator and Incubator on the Listing Experience, the Authority is collaborating with capital markets regulators in the region under the East African Securities Regulatory Authorities (EASRA), which recently approved a proposal to support the establishment of a Capital Markets Advisory Centre (CMAC) to enhance SME access to capital. When established, the institution’s support is expected to focus on prelisting, listing and post listing support services”.

The CMA Chief Executive reiterated that the Authority will also work with business incubators to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services to engage with firms that are not ready to list but have promising prospects that could be nurtured through incubation. This is geared to develop a pipeline of successful businesses to be listed in the future.

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BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY

The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.

The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest. For more information contact; Antony Mwangi, Head of Corporate Communications on amwangi@cma.or.ke

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FSVC U.S. SEC and Bloomberg to Support Capital Market Liquidity in Kenya

Nairobi, March 9, 2017 –The Financial Services Volunteer Corps (FSVC), the U.S. Securities
and Exchange Commission (SEC) and Bloomberg have structured a technical assistance mission
to support the Capital Markets Authority (CMA) of Kenya and industry stakeholders in
increasing liquidity in the nation’s capital markets. This week, representatives from these global
institutions will convene with senior officials from the CMA as well as key market stakeholders
in Nairobi to help address regulatory and market-based impediments to liquidity, and advise on
the development of new products and services to improve market access.
“The CMA is pleased to partner with FSVC, Bloomberg and the SEC on this important
program,” said CMA Chief Executive Paul Muthaura. “After a comprehensive review and
analysis of the securities market, the CMA has identified several areas for improvement,
including securities lending and borrowing (SLB), strengthening of collective investment
schemes (CIS) reporting and structuring and, in line with the ambitions of the 10-year Capital
Market Master Plan, positioning Kenyan securities and the overall market for inclusion in the
right market indices. This week’s consultations are an important first step in building the
capacity of the CMA and market participants to develop new products and services that will
enhance liquidity.”
Improved liquidity, or volume and pace of trading, in capital markets is vital to improving the
attractiveness of the market through ensuring easier entry and exit.
In recent years, Kenya’s capital markets have registered impressive growth and development in
virtually all parameters, thanks in part to reforms initiated to encourage the deepening of the
markets. This rapid growth has brought to light, however, several challenges that limit its
future growth. These challenges highlight the need for stronger market infrastructure,
increased diversification of financial products and services to cater to the growing needs of
investors and issuers, and the need to improve the level of awareness among potential and
existing investors regionally and internationally.
To help address these challenges, FSVC, with the support of Bloomberg, is providing technical
expertise from the U.S. SEC, Bloomberg and Fordham Law School that will help build the
capacity of the CMA and market intermediaries.
FSVC is a not-for-profit organization that deploys volunteer experts to emerging market
countries to help strengthen financial sectors. FSVC has assisted scores of countries in
establishing and deepening their capital markets over the last 26 years.
“Bloomberg has a long-standing commitment to promoting the business and economic interests
of sub-Saharan Africa,” said Bloomberg LP Chairman Peter T. Grauer. “Stronger trade and
investment ties between the U.S. and African countries are mutually beneficial, and East Africa
is a region of enormous strategic importance as well as economic potential. We are delighted
to partner with FSVC to help Kenya realize more of its tremendous promise by promoting
greater domestic and foreign investment through its capital markets.”
Over the course of this week, capital market experts from Bloomberg and volunteer experts
from FSVC, including representatives from the SEC, will meet with CMA officials, financial
sector regulators and market stakeholders to present international best practices in adopting
and implementing SLB and CIS transparency, as well as offer suggestions for new products
which will facilitate trading on the Kenyan market. The volunteer experts will also discuss the
adoption of measures that will enable the recognition of Kenyan markets on globally
competitive indices.
“Drawing upon FSVC’s significant expertise in the area of capital markets development, these
consultations will help enable the CMA to develop new products and undertake key reforms to
improve liquidity,” FSVC President & CEO Andy Spindler stated. “Robust capital markets play a
critical role in sustainable economic development by mobilizing domestic savings and foreign
capital for longer-term, productive investment. Kenya has already made significant strides in
this area, and, thanks to the support of Bloomberg, FSVC will help the CMA establish a vibrant
and competitive financial sector driving economic growth in the region.”
According to one of the SEC volunteer experts participating in the program, Julie Preuitt, “The
CMA has done a commendable job in adopting necessary reforms to deepen its capital markets.
The SEC is pleased to provide supplementary guidance and support to its peers at the CMA as
they seek to position Kenya as a world class financial center and regional financial hub.

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CMA approves listing of first Exchange Traded Fund in Kenya

Nairobi February 17, 2017…The Capital Markets Authority (CMA) has granted approval for the listing of the first Exchange Traded Fund (ETF) in Kenya, to be issued by NewGold Issuer (RF) Limited. NewGold Issuer (RF) Limited, a company incorporated in South Africa. NewGold Issuer (RF) Limited will issue and list 400,000 Gold Bullion Debentures as a secondary listing on the Nairobi Securities Exchange (NSE) main investment market segment. The value of NewGold ETF tracks the price of gold. The listing price of the ETF will be determined on the listing date based on the real time cash market values of the gold price and the real time price of the Kenya Shilling.

ETFs are a type of listed open-ended index or unit instrument bought or sold on a securities exchange. The index or unit may be composed of ordinary stocks, bonds, commodities, futures or a combination of real assets with the objective of allowing for exposure to a portfolio of securities, assets or indices whose price movement is in tandem with the price movement of the constituent underlying securities or commodities. An ETF can be a domestic or offshore product. The Authority developed Policy Guidance Notes in September 2015 to operationalize the trading of ETFs in Kenya.

The Capital Market Master Plan prioritizes regional and international investment as one of the areas of focus. ETFs provide an opportunity for investors to diversify their investment portfolios to access international products. “This is a critical milestone in positioning Kenya as a gateway for regional and international capital flows by developing creative products that promote investor confidence in regional products. This is a step toward Kenya becoming a choice investment destination”, said CMA Chief Executive Mr. Paul Muthaura.

The Authority observed that the Supplemental Prospectus of NewGold Issuer (RF) Limited makes adequate disclosure of material information in accordance with the requirements of the Capital Markets Act and the Exchange Traded Funds Policy Guidance Note, 2015 to enable investors make an informed decision on the issue.

NewGold Issuer (RF) Limited, a wholly-owned subsidiary of NewGold Owner Trust, was primarily listed on ETF sector of the Johannesburg Stock Exchange in 2004. Other secondary listings of the ETF have been on the Botswana Stock Exchange, Stock Exchange of Mauritius, Namibia Stock Exchange and Ghana Stock Exchange (2012).

The NewGold Gold Bullion Debentures issued subsequent to the secondary listing on the NSE will rank equally with each other and with all other Gold Bullion Debentures already in issue, prior to the NSE listing.

NewGold Issuer (RF) Limited uses proceeds from the Issue to acquire Gold Bullion. Gold Bullion held by NewGold are physical unwrought gold in the form of London Good Delivery Bars.

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BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY
The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.
The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest. For more information, please contact: Antony Mwangi, Head of Corporate Communications on amwangi@cma.or.ke

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CMA approves registration of Credit Rating Agency

Nairobi, September 11, 2014…The Capital Markets Authority (CMA) has approved the registration of Metropol Corporation Ltd as a credit rating agency, bringing to three the number of credit rating agencies licensed to operate in Kenya. A credit rating agency is an organization that evaluates the relative creditworthiness of issuers of securities and assigns ratings to such securities. Metropol Corporation Ltd intends to focus on providing credit ratings to SMEs to increase their potential to access money diversified capital sources.

‘The Authority has considered the application and reviewed the documents submitted in support of the application and is satisfied that they comply with the Guidelines on the Approval and Registration of Credit Rating Agencies in Kenya as well as the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies’, noted the Authority in a statement released to newsrooms.

Previously, Global Credit Rating Company and Agusto and Company Limited have dominated the market in Kenya.

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BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY

The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.

The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest.

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Regulatory Framework for the Introduction of Exchange Traded Funds (ETFs) in Kenya exposed for final stakeholder input

Nairobi, August 5, 2015…Capital Markets Authority has announced the commencement of a 30-day public exposure of a draft Policy Guidance Note (PGN) which will be used to guide the operation of Exchange Traded Funds (ETFs) in Kenya. The Policy Guidance Note and the activities commenced in line with it are subsequently expected to inform the development of a comprehensive legal and regulatory framework.

An Exchange Traded Fund is an investment fund such as a unit trust that is traded on a securities exchange. ETFs may track an index, a commodity or a sector. The index or unit may be composed of ordinary stocks, bonds, commodities, derivatives or a combination of real assets whose price movement is in tandem with the price movement of the constituent underlying securities or commodities. An ETF can be a domestic or offshore product.

“The introduction of an ETF market in Kenya will offer investors an alternative option to invest in a pool of securities or other assets in a formal securities exchange environment. Additionally, ETFs offer a mechanism for reducing exposure to significant price fluctuations that sometimes characterize arbitrary buying and selling of securities.” said CMA acting Chief Executive, Mr. Paul Muthaura.

Mr. Muthaura noted that the draft regulatory framework provides a guide to listing ETFs in Kenya in addition to identifying and proposing measures to mitigate the potential regulatory risks. He confirmed that the overarching objective of the framework is to promote market confidence and integrity in line with the drive for fair and efficient financial markets in Kenya. The framework has benefitted from extensive local and regional industry engagement as well as global benchmarking in its design.
As a regulator and market development facilitator, the Authority has been working closely with key market stakeholders in the development of the policy and the proposed regulatory framework. The introduction of ETFs is in line with the delivery of the Capital Markets 10 year Master Plan (CMMP) and Kenya’s Vision 2030 targets on making Kenya a competitive finance and investment centre.

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Settlement of Securities Moves to Central Bank of Kenya

Nairobi January 16, 2015: …In a move that will improve the efficiency of settlement of equities and corporate bonds and align the process to international best practice, Central Depository and Settlement Corporation (CDSC) has worked together with the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK) to develop a more robust cash settlement model for equities and corporate bonds.

The cash side of the settlement process for transactions concluded on the Nairobi Securities Exchange (NSE) is now being done through the Central Bank of Kenya’s (CBK) Real Time Gross Settlement (RTGS) system, with effect from January 15, 2015. Previously, the cash settlement for securities transactions was effected through four commercial banks appointed as settlement banks by the CDSC. The securities leg of the settlement process, which entails the transfer of securities between the buyers and sellers, will continue to be carried out at CDSC.

While making the announcement, the CDSC Chief Executive, Mrs. Rose Mambo, said that this milestone moves the capital market a step closer towards providing full delivery versus payment (DVP) while deepening the capital markets. Mrs. Mambo emphasized that settlement of cash for securities transactions through CBK enhances efficiency and makes substantial strides towards full implementation of the CPMI – IOSCO Standards for Financial Markets Infrastructures. Mrs. Mambo added “CDSC is a key institution in the capital market that provides a secure central record of ownership and provides the means for the secure transfer of ownership of securities and settlement of cash following transactions at NSE”.

The CBK Governor, Prof. Njuguna Ndung’u, said “the settlement of equities and corporate bonds at CBK is part of the Bank’s legal mandate in formulating and implementing policies that best promote the establishment, regulation and supervision of efficient, effective payment, clearing and settlement systems”.

Prof Ndung’u explained that settlement using the RTGS system is aligned to the broader East African Community (EAC) objective of enhancing the efficiency of the settlement system as the region prepares for integration of the financial system.

The Capital Markets Authority (CMA) Acting Chief Executive, Mr. Paul Muthaura, noted the use of the RTGS system for securities settlement is a substantial step in strengthening the measures to address settlement risk, in line with the overall mitigation arrangements to combat systemic risk.

This constitutes the first phase of the Kenyan markets full transition to settlement of securities transactions in Central Bank money in line with global best practice standards. This arrangement is expected to boost foreign and domestic investor confidence in the Kenyan market and promote greater liquidity at the Nairobi Securities Exchange (NSE). Mr. Muthaura observed: ‘’This moves Kenya a step closer to attaining the status of a Regional and International Financial Center as envisaged in the Vision 2030 Economic Blueprint and the Capital Markets Master Plan.”

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CMA cautions investors about the Unlawful Public Offer by Cembe Millers

Nairobi February 19, 2015… In line with its mandate of protecting investors, the Capital Markets Authority (CMA) would like to caution members of the public against participating in the unlawful public offer by Cembe Millers, since it has not been approved by the Authority. The public offer was made today (February 19, 2015) through a public advertisement in the print media.

While issuing the cautionary statement, the CMA confirmed that the Cembe Millers public offer had not been approved as required for all public offers. The Authority noted that the purported offer was in breach of Section 30A Subsection (4) of the Capital Markets Act Cap 485A, which states; ‘’Subject to the provisions of this Act, an issuer or an offeror shall not make a public offer of securities unless that issuer or offeror has submitted a prospectus in respect of that offer to the Authority for approval’’.

The CMA has written to the promoters of the Cembe Millers offer requiring them to immediately withdraw it. The Authority will further proceed to launch investigations in collaboration with other arms of Government to establish the identity of the persons behind the offer and take appropriate action against them.

The Authority finally advised Kenyans to confirm if any public offers have been approved by the Authority before participating to avoid loss and exposure.

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