4.2: Develop commodities and derivative markets
The Capital Markets (Derivatives Markets) Regulations 2016 are in place to govern the derivatives market. The NSE successfully concluded the derivatives market pilot test phase in December 2018 which covered two cycles:
i) Systems test using dummy data
ii) Live testing using actual cash.
Issues identified during the pilot test phase were successfully closed out and critical updates to IT infrastructure & Systems made. CMA granted approval to NSE to launch and operate the Derivatives Exchange Market on 29 May 2019.
The Capital Markets (Derivatives Markets) Regulations 2015 as prescribed in the Capital Markets Act provides for the licensing of derivatives exchange and approval of clearance & settlement rules by the CMA.CMA licensed NSE to operate as a futures exchange on 19 October 2015.CMA granted approval to NSE to launch and operate the Derivatives Exchange Market on 29 May 2019.
NSE licensed to operate as a futures exchange on 19 October 2015.CMA granted approval to NSE to launch and operate the Derivatives Exchange Market on 29 May 2019.
CMA engaged a resident consultant to provide an opinion on the suitability of the current tax framework in relation to derivative transactions. The consultant in his opinion noted that there are no immediate tax issues given that the Capital Gains Tax was suspended. As at 31 March 2019, deeper consultation is been done as the market develops.
The Authority in conjunction with NSE has undertaken various awareness building programmes with market players.A draft CMA derivatives market capacity building program was developed, reviewed and rolled out in January 2018. The CMA derivatives market capacity building program began implementation in January 2018, targeting fund managers, policy makers, market intermediaries and staff. The following workshops have so far been held:i. CMA Directorate of Market Operations Derivatives Training- 28 November 2018ii. Joint CMA and NSE Board training- 29 November 2018 iii. Market participants Forum-29 November 2018iv. Trustee awareness program- 30 November 2018
The Authority is a member of the National taskforce in the development of commodities exchange in Kenya.The Authority is a member of the Coffee Sub-Sector Reforms Implementation Committee that aims to transform Nairobi Coffee Exchange into a fully fledged coffee exchange.Feasibility study on the viability of a commodities exchange in Kenya has been undertaken.Project Management Office established under State Department of Trade.No study has hitherto been done to identify areas where the Country can be an international price formation centre. However, in one of its meetings in 2017, WG2 identified Commodity markets as one of the areas the country could be having a clear competitive advantage. To this end, commodities like coffee and Tea have been of interest to the Capital Markets MasterPlan implementation team. As an update, Capital Markets Act was amended in 2016 to provide for regulation of Commodity Exchanges. There are two Government-led initiatives on Commodity Markets reform.
The Authority submitted proposed amendments to the Warehouse Receipt Systems(WHRS) Bill in 2018. The Bill was passed by the Senate in February 2018 and subsequently passed by the National Assembly in November 2018 but after further amendments. However, in passing the amendments to the Bill, the jointly proposed amendments submitted by the Ministry of Agriculture and Trade and the Authority were not incorporated.An appeal to the Clerk of the National Assembly for consideration of the jointly proposed amendments has been done.
CMA was appointed as a primary regulator for spot commodities markets by Finance Act 2016.
CMA was appointed primary regulator of spot commodities by the Finance Act 2016. Commodities like Coffee and Tea have been of interest to the Capital Markets Masterplan implementation team.
There are two Government-led initiatives on Commodity Markets reform.
The draft Capital Markets (Commodity Exchange) Regulations 2019 were reviewed by the National Taskforce in March 2019 and refined. A Stakeholder Engagement Schedule has been developed where stakeholders from counties and other interested groups will be engaged and their comments received.The Kenya National Multi-Commodity Exchange Ltd. was incorporated on 29 March 2019 with Government of Kenya as nominal stakeholder, expression of interest is to be issued in April 2019 to invite potential investors and promoters from the private sector. The Capital Markets Act requires that for a commodities exchange to be licensed it must be a private company limited by shares and the exchange must be a demutualized exchange.
This is to be progressed once the commodities exchange has been established.
CMA was appointed as a primary regulator for spot commodities markets (including energy) by Finance Act 2016.