4.2: Develop commodities and derivative markets

Measurement
Regulations regarded by experts as fit for purpose.
Working Group
WG3
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.

Timelines
2014-2016
 
Status
Completed
Measurement
First launched derivative market is regulated by the CMA.
Working Group
WG3
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 May 2019 and launched in July 2019.

Timelines
2014-2016
 
Status
Completed
Measurement
First launched derivative market is regulated by the CMA.
Working Group
WG3
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 and launched in July 2019.

Timelines
2014-2016
 
Status
Completed
Measurement
A derivatives tax framework in place.
Working Group
WG3
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. 

Timelines
2014-2016
 
Status
Completed
Measurement
Growth of the derivatives market in Kenya.
Working Group
WG2
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                                                                            

Timelines
2014-2016
 
Status
Continuous
Measurement
Commodities identified
Working Group
IC
Implementation Progress

The Authority is a member of the National taskforce for the establishment of a 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 regulated by the Capital Markets Authority.
Feasibility study on the viability of a commodities exchange in Kenya was undertaken and consultants report published (stalwart report). This report provides the guiding principles to the National Taskforce. Project Management Office established under State Department for Trade. The Kenya National Multi Commodity Exchange (KOMEX) was incorporated on 29 March 2019, subsequently an expression of interest process was completed and investors to capitalize KOMEX have formed the Board to oversee the establishment of KOMEX. Draft Capital Markets (Commodity markets) Regulations, 2019 and the Warehouse Receipt Systems Regulations, 2019 under Crops Act have been developed and stakeholder engagement on the same is under progress.

The Coffee Sub-Sector Reforms Taskforce report was published in 2016. This taskforce report provides the guiding principles to the CSIC. The Capital Markets (Coffee Exchange) Regulations, 2019 and the Coffee General Regulations, 2019 under Crops Act were developed and stakeholder engagement completed. On 1st of July 2019, the CS Agriculture gazetted the Coffee General Regulations, 2019. The CSIC and CMA are following up the National Treasury to gazette the Capital Markets (Coffee Exchange) Regulations, 2019.


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 Sep 2016 to provide for regulation of Commodity Exchanges in Kenya.

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.

Timelines
2020-2023
 
Status
In Progress (Ahead of Schedule)
Measurement
WRS schemes put in place
Working Group
WG2
Implementation Progress

The Authority submitted proposed amendments to the WRS 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.
The WRS Bill was enacted on 18 June 2019 without incorporating the jointly proposed amendments.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
CMA appointed as regulator of spot commodity markets.
Working Group
WG3
Implementation Progress

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

Timelines
2016-2020
 
Status
Completed
Measurement
Rules and regulations approved and published.
Working Group
WG3
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 the Kenya National Multi- Commodities Exchange Ltd.(KOMEX) in February 2019.These regulations were formally submitted to the State Department of Trade in March 2019 and adopted as a Zero draft.

Draft Capital Markets (Commodity markets) Regulations, 2019 and the Warehouse Receipt Systems Regulations, 2019 under Crops Act have been developed and stakeholder engagement on the same is under progress.

The KOMEX was incorporated on 29 March 2019 subsequently an expression of interest process was completed and investors to capitalize KOMEX have formed the Board to oversee its establishment.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Spot market for power established
Working Group
WG2
Implementation Progress

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

Timelines
2020-2023
 
Status
Not Started
Measurement
Regulator in place.
Working Group
WG3
Implementation Progress

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

Timelines
2020-2023
 
Status
Completed