As a player in the Kenyan Capital Markets, we would first like to commend the Capital Markets Authority (‘Authority’) on its commitment to improving our capital markets by amending the current capital markets regulation, so as to be more responsive to the market needs and address new and emerging views. We believe that improving the regulatory environment is one of the main ways to foster the growth of Capital Markets, promote investor protection and improve investor confidence through a transparent and efficient capital market. To this end, we have analyzed the Capital Markets regulation and have prepared a number of proposed amendments, which in our view, their adoption will promote the growth of the Kenyan Capital market in general.
| No | Regulations | Areas of Improvement | Conceptual Issues/Further comments | Recommendation |
|---|---|---|---|---|
| 1 | Regulation 17(2) | A market intermediary shall not change its shareholders, directors, chief executives or key personnel except with the prior confirmation, in writing, by the Authority that it has no objection to the proposed change and subject to compliance with any conditions imposed by the Authority. | The Regulation as it reads at the moment leaves an open window for malice by the authority to unreasonably deny changes that are justified and reasonable in the shareholders, directors, chief executives or key personnel. P | A market intermediary shall change its shareholders, directors, chief executives or key personnel provided it gives notice to the authority and justifies the reasons for the changes. The authority shall not unreasonably withhold the market intermediary from effecting such change |
2. The Capital Markets (Licensing Requirements) (General) Regulations,2002
| No | Regulations | Areas of Improvement | Conceptual Issues/Further comments | Recommendation |
|---|---|---|---|---|
| 1 | Regulation 5(1) | Trading participants of a securities exchange shall be licensees of the Authority with rights to trade at an approved securities exchange. The Authority may prescribe limits on the ownership of a securities exchange by its trading participants.. | The authority is left with an open blanket which can be subject to abuse; the reasons for withdrawal of the right to ownership which in this case is withdrawn by withdrawal, must be justified. | The Authority may prescribe limits on the ownership of a securities exchange by its trading participants on the following grounds: a)Where ownership might lead to a conflict of interest or insider trading b)Where any law of the state restricts ownership |
| 2 | Regulation 5 | Regulation 5 provides that securities exchange is held by trading participants who are licensees of CMA. For general population to subscribe the Capital Markets (Demutualization of the Nairobi Securities Exchange Limited) Regulations 2012 apply. | The requirement for membership and tedious approval process is considered a barrier to market entry. | The requirement for membership and approval should be done away with/ requirements lessened or done away with. |
| 3 | Regulation 9(3)(c) | The rules of a securities exchange shall, where applicable, support the self-regulatory functions of the securities exchange and in particular shall be designed to exclude a person who is not fit and proper from being its trading participant or being appointed as its chief executive, director or officer | To protect the trading participants, chief executives, directors or officers from unjust exemption via rules not in place | Proposed addition to (c) which is to read “exclude a person who is not fit and proper from being its trading participants or appointed as its chief executive, director or officer as shall be defined in the rules of a securities exchange”. |
| 4 | Regulation 15 and Regulation 22 | Regulation 15 and 22 on Minimum Paid –Up Capital Stock Brokers-50 Million Dealers – 20 Million Investment advisers – professional indemnity of at least Kshs. 500,000 Fund Manager – 10 Million | The regulation as is makes smaller scale ventures targeting specific regions, e.g. tea growers in Nyeri, where the venture envisions getting stock brokers and fund managers on board uneconomical and almost impossible | The Minimum Paid Up Capital should be reduced or alternatively, a separate minimum share capital for securities exchange serving specific regions. |
3. The Capital Markets (Take-Overs and Mergers) Regulations,2022
| No | Regulation | Areas of Improvement | Conceptual Issues/Further comments | Recommendation |
|---|---|---|---|---|
| 1 | Regulation 3(2) | A company that is in control of 25% of the voting share of a listed company can only acquire up to 5% in any one-year in such a listed company up to a maximum of 50%.. | This regulation acts as an impediment to stake building. Stake building occurs where a shareholder may desire to build its stake in a company either to block an impending takeover by raising its shareholding to above 10%, or beyond 90% in order to improve the chances of an impending takeover offer. This has been made impossible by the current regulation as is. | Addition of an exemption to the regulation to allow acquisition of more than 50% in certain circumstances. |
| 2 | Regulation 18 | A take-over offer shall be deemed to close on the last day of the offer period | It is important to allocate enough time for matters investments, closing on the last day of the offer period is not necessary, it might lock out important take overs that were delayed over by negotiations | A take-over offer shall be deemed to close on the day after the last day of the offer period |
4. The Capital Markets (Conduct of Business) (Market Intermediaries) Regulations, 2011
| No | Regulation | Areas of improvement | Conceptual issue/Further comments | Recommedation |
|---|---|---|---|---|
| 1 | Regulation 4(2) | The regulation establishes the suitability rule and provides that all persons providing intermediary services must take all reasonable steps to ensure their offer is suitable | This regulation is marred with openness and vagueness that needs to be eliminated as it imposes an impossible fiduciary duty on market intermediaries to always result in profits and opens market intermediaries to suits even when they have acted in the what they deemed the best interests of the clients. | There should be a clear and established criteria established on what is ‘suitable’ |
| 2 | Regulation 16(7) | A market intermediary shall immediately and in all events within twenty four hours, inform the Authority of any complaint that is still unresolved, three months after it was received. | The market intermediary has only been given conditions to submitting unresolved complaints to the Authority but there are no repercussions to when it fails to submit to the Authority. This addition is to protect market players dealing with the intermediary from disregard of their complaints since there are no repercussions to the intermediary from the authority. | Addition of the following to the Regulation, “Failure to which, the market intermediary shall face a penalty of 200,000/= subject to further penalties as the authority may find fit |
