4.2: Develop commodities and derivative markets

Measurement
Regulations regarded by experts as fit for purpose.
Working Group
Implementation Progress

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.

Status
In progress
Measurement
First launched derivative market is regulated by the CMA.
Working Group
Implementation Progress

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.

Status
Completed
Measurement
First launched derivative market is regulated by the CMA.
Working Group
Implementation Progress

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.

Status
Completed
Measurement
A derivatives tax framework in place.
Working Group
Implementation Progress

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.

Status
In progress
Measurement
Growth of the derivatives market in Kenya.
Working Group
Implementation Progress

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 2018
ii. Joint CMA and NSE Board training- 29 November 2018    
iii. Market participants Forum-29 November 2018
iv. Trustee awareness program- 30 November 2018                                                                            

Status
In Progress
Measurement
Commodities identified
Working Group
Implementation Progress

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. 

  1. The Coffee Sector Implementation Committee(CSIC) - is the Gazetted Committee to implement the 2016 Taskforce Report on Coffee sub-sector reforms. Under this reform initiative, there are two(2) pillars that relate to legal, regulatory and institutional reforms, namely; pillar1(Coffee sub-sector legal reforms) and pillar 4 (modernization of Nairobi Coffee exchange). These 2 pillars have informed the development of the Nairobi Coffee Exchange Trading Rules which were redrafted to Coffee exchanges Regulations 2018, anchored under Capital Markets Act. Also, there are Coffee General Regulations 2018 which have been drafted but anchored under Crops Act.
  2. The National Taskforce on the establishment of commodities exchange in Kenya. On this reform initiative, draft Commodity Exchange Regulations were developed in January 2019, with the Cabinet approving incorporation of KOMEX( Kenya Commodities Exchange) in February 2019.

Status
In Progress
Measurement
WRS schemes put in place
Working Group
Implementation Progress

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.

Status
In Progress
Measurement
CMA appointed as regulator of spot commodity markets.
Working Group
Implementation Progress

CMA was appointed as a primary regulator for spot commodities markets by Finance Act 2016.

Status
Completed
Measurement
Rules and regulations approved and published.
Working Group
Implementation Progress

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.

  1. The Coffee sector implementation Committee (CSIC) – is the Gazzetted Committee to implement the 2016 Taskforce Report on Coffee sub-sector reforms. Under this reform initiative, there are two (2) pillars that relate to legal, regulatory and institutional reforms, namely; pillar 1 (Coffee sub-sector legal reforms) and pillar 4 (modernization of Nairobi Coffee Exchange). These 2 pillars have informed the development of the Nairobi Coffee Exchange Trading Rules which were re-drafted to Coffee Exchanges Regulations 2018, anchored under Capital Markets Act. In addition, Coffee General Regulations 2018 have been drafted, but anchored under Crops Act.
  2. The National Taskforce on establishment of commodities exchange in Kenya. On this reform initiative, the Authority developed a draft Commodity Exchange Regulations and Licensing Criteria for spot commodities exchanges in January 2019, with the Cabinet approving Incorporation of KOMEX in February 2019.These regulations were formally submitted to the State Department of Trade in March 2019 and adopted as a Zero draft.

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.

Status
In Progress
Measurement
Spot market for power established
Working Group
Implementation Progress

This is to be progressed once the commodities exchange has been established.

Status
Not Started
Measurement
Regulator in place.
Working Group
Implementation Progress

CMA was appointed as a primary regulator for spot commodities markets (including energy) by Finance Act 2016.

Status
Completed

Key

No Progress
Behind Schedule
Ahead of Schedule