4.1: Enhance securities markets

Measurement
Market making introduced.
Working Group
WG2
Implementation Progress

NSE rules were amended in June 2016 to allow market making in the equities market.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Market making introduced for a range of Government bonds
Working Group
WG2
Implementation Progress

Draft regional framework (Code of Conduct and Guidelines) for Government Securities Market Makers (GSMMs) was developed in March 2017 by the Regional Technical Working Group and considered by the Monetary Affairs Committee (MAC) in August 2017. A subsequent meeting of the RTWG was convened in January 2018 to develop appropriate methodologies for implementing the Code and Guidelines.

The National Treasury is leading this initiative on Market Making as part of the 7 point plan on Government Bond Market Reforms. Through the Bond Market Association (BMA) the industry has agreed to adopt the Global Master Repo Agreement 2011 and is in the process of finalizing a Kenyan Annex to the GMRA. Also through the Bond Market Steering Committee (BMSC) the industry is in the process of implementing an OTC trading platform which will have capabilities for two-way quotes and trade reporting and BMA has developed draft rules which are under review.

The SLB regulations were gazetted on 12 January 2018. These are expected to support market making for the government bond market.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Short selling is allowed in Kenya
Working Group
WG3
Implementation Progress

Draft SLB and Short Selling regulations were finalized and approved by the CMA's Board in July 2017 and were progressed to the National Treasury for gazettement.

The SLB and Short selling regulations were gazetted on 12 January 2018. 
The CDSC and NSE systems have been decoupled following go-live on 14th October 2019, therefore allowing short selling.



Timelines
2014-2016
 
Status
Completed
Measurement
SLB introduced.
Working Group
WG3
Implementation Progress

Following gazettement of the SLB and Short selling regulations on 12 January 2018, two benchmarking studies have been conducted. The first benchmarking study was conducted in October 2018 and the second study was conducted in January 2019. The objective of the studies was to identify the best model for implementation of SLB. The regulations had envisaged a bilateral arrangement, but some industry participants are supportive of a centralized arrangement.

Timelines
2014-2016
 
Status
Completed
Measurement
Investment guidelines in place.
Working Group
WG3
Implementation Progress

Once SLB Regulations are operationalised, CMA is to commence engagements with the regulators to allow pension funds and insurance companies to lend out their securities.

Timelines
2016-2020
 
Status
Not Started
Measurement
Active use of the service by market makers and other market participants resulting in increased business
Working Group
WG2
Implementation Progress

CDSC submitted the draft operational guidelines for Securities Lending and Borrowing to the Authority in June 2017.

Engagements are ongoing on CDSC SLB Rules.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Pre-funding requirement removed
Working Group
WG3
Implementation Progress

CDSC and NSE trading systems have been decoupled following the system go-live on 14 October 2019, therefore removing the requirement for prevalidation.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Firms use DMA functionality
Working Group
WG2
Implementation Progress

The Authority developed the draft policy framework on DMA in July 2017 and the NSE submitted its guidelines on the operationalization for approval by CMA. The rules were submitted and approved by the CMA Board on 6 December, 2019.

Timelines
2014-2016
 
Status
Completed
Measurement

Block trading under new rules takes place.

Working Group
WG3
Implementation Progress

In Kenya, block trading began before the Automated Trading System was implemented. Block trading introduced changes in trading dynamics such as trading in a parallel market while at the same time traded at discounts leading to price asymmetry. Block trading was therefore suspended.

In this regard, the following steps were taken in achieving the re-introduction of block trading:

  1. March 2017-a concept paper on block trading to guide stakeholder consultations was developed.   
  2. 14 September 2017- the first stakeholder engagement meeting was held comprising of CMA, NSE and KASIB
  3. 5 February 2018 -the second stakeholder engagement meeting was held comprising of CMA,FMA and KASIB  

Following stakeholder engagements, the market participants were of the view that re-introduction of block trading was not feasible due to the low liquidity levels in the market. The activity has been reprioritized until high levels of liquidity are realized through operationalization of SLB and Short Selling.

Timelines
2014-2016
 
Status
Reprioritized
Measurement
Tangible increase in bond trading activity
Working Group
WG2
Implementation Progress

The process to set up an SRO as a market organizer began with the registration of OTC Link Plc on 10 August 2017.
Draft OTC rules under stakeholder consultation which will inform the Trade Reporting System specifications.
A consultancy was undertaken for review of the legal framework to support insolvency net off and settlement finality and a final report submitted to the Authority in September 2017.
The report recommended amendments to the Capital Markets Act, Kenya Deposit Insurance Act, Insolvency Act, Insurance Act and the Central Bank Act. The amendments are to be effected by June 2019.

A Hybrid Bond Market consultant (FDHL-Salonica) was on boarded to support the Authority in developing the regulations, rules and operational guidelines to support effective and transparent bond trading operations. The Consultants submitted the draft inception report and feedback given by the Authority.  On the other hand, Kenya Bankers Association in partnership with
FSDA developed a business plan for the SRO (Market Organizer).

In 2019, the consultant submitted 2 reports as follows:

  • Policy, legal and operational framework for approving/licensing SROs/Market organizers and
  • Technical specification and requirements for an appropriate OTC platform.

The reports have been reviewed internally and comments incorporated by the consultants. A 3-day validation workshop targeting key bond market stakeholders was held on 24, 25 and 26 April 2019 with the primary objective of appraising them on the progress and building consensus on the implementation plan as well as identifying any capacity gaps.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Primary dealer arrangement in place.
Working Group
WG3
Implementation Progress

This is yet to be commenced.

Timelines
2014-2016
 
Status
Not Started
Measurement
Trading in international DRs on NSE
Working Group
WG2
Implementation Progress

A PGN developed and published in July 2017. NSE is continuously in engagement with potential issuers. Citi Bank, a potential issuer was granted approval by CMA on 27 March 2018 and is in engagement with relevant stakeholders to issue a GDN.

Timelines
2014-2016
 
Status
In Progress (Behind Schedule)
Measurement
Margin trading regulations in place.
Working Group
WG3
Implementation Progress

This has been reprioritised, awaiting implementation of SLB.

Timelines
2014-2016
 
Status
Reprioritized
Measurement
NSE listed as an independent company on the NSE
Working Group
WG2
Implementation Progress

NSE demuatilised and self listed on 9 September 2014.

Timelines
2014-2016
 
Status
Completed
Measurement
NSE re-branded
Working Group
WG2
Implementation Progress

The new brand of NSE was launched on 7 April 2014.

The new brand launch was informed by NSE’s strategy to reposition itself as more inclusive, with the aim of encouraging an investment culture among Kenyans that fully embrace the capital markets.

Timelines
2014-2016
 
Status
Completed
Measurement
NSE is able to determine its own fee structure.
Working Group
WG3
Implementation Progress

This has been reprioritized to a longterm activity.

Timelines
2016-2020
 
Status
Reprioritized
Measurement
More capital markets infrastructure implemented in Kenya.
Working Group
WG3
Implementation Progress

Approval processes by CMA  for infrastructure are straightforward and efficiently streamlined. The requirements are published on the CMA's website for transparency.

Timelines
2014-2016
 
Status
Completed
Measurement
New firms admitted to NSE
Working Group
WG2
Implementation Progress

The trading participant rules provide for Trading participants access fees to NSE platform reduced from KES 250 million to  KES 25 million in 2014.

Timelines
2014-2016
 
Status
Completed
Measurement
A Coordinated educational campaign is launched and implemented as per the annual workplan.
Working Group
WG2
Implementation Progress

The Authority in collaboration with the industry organized the first business incubator and accelerator on the listing experience in March 2017 and has identified 40 potential issuers.
The Authority is in continuous engagement with the identified potential issuers.

The NSE, CDSC and KASIB developed a Rapid Mass Visibility Strategy (RMVS) which was rolled out in December 2018 dubbed IBUKA which is an incubation platform for potential issuers. By 16 July 2020, the platform had successfully admitted 24 companies.

Timelines
Continuous
 
Status
Continuous
Measurement
More listings.
Working Group
WG3
Implementation Progress

The listing application procedure has been published on CMA's website since 2013.

Timelines
Continuous
 
Status
Continuous
Measurement
Companies Act amended.
Working Group
WG3
Implementation Progress

Companies Act no. 17 of 2015 repealed Companies Act CAP 486. Section 13-16 of the Companies Act no. 17 of 2015 highlights the requisite documents for registration of companies. This makes registration of companies streamlined and thus more efficient.

The Companies (Amendment) Act No. 28 of 2017 introduced amendments to the Companies Act no. 17 of 2015 by extending compliance of the Act to beneficial owners. Beneficial owner is defined as a natural person who ultimately owns or controls a legal person or a natural person on whose behalf a transaction is conducted and includes those persons who exercise ultimate effective control over a legal person or arrangement.

Timelines
2020-2023
 
Status
Completed
Measurement
Greater foreign participation in the Kenyan market. Achievement of MSCI emerging market status by medium term.
Working Group
WG3
Implementation Progress

The Capital Markets (Foreign Investors) Regulations 2008 was revised vide Legal Notice no. 134 of 2015 that removed the 75% foreign ownership cap with the Cabinet Secretary having discretion to prescribe caps on companies deemed to be of national strategic importance.

The Finance Act 2016 amended the Companies Act no. 17 of 2015 by deleting the requirement that all foreign companies in Kenya should have 30% shareholding by Kenyan citizens.

Timelines
2016-2020
 
Status
Completed
Measurement
GDR and GDN listed in other markets
Working Group
WG2
Implementation Progress

Policy Guidance Notes on Global Depositary Notes /Receipts issued in July 2017.
A potential issuer was granted approval to issue a GDN on 27 March 2018, and is in engagement with relevant stakeholders to issue a GDN

Timelines
Continuous
 
Status
Continuous
Measurement
Number of KDRs listed at NSE
Working Group
WG2
Implementation Progress

Policy Guidance Notes on Global Depositary Notes/Receipts issued in July 2017.
The framework caters for both inward and outbound GDR/N.

Timelines
Continuous
 
Status
Continuous
Measurement
3-4 GEMS listings per year
Working Group
WG2
Implementation Progress

A study was undertaken with the partnership of CMA, NSE and FSD Kenya on the strengthening of the GEMS market in September 2015 and the recommendations are progressively being implemented.
5 GEMS listed at the Exchange as at 31 March 2019, against a target of 12 listings.

There are continuous initiatives to promote listing e.g. the business incubator and accelerator experience and the IBUKA platform that had admitted 18 companies as at 20 November 2019.

Timelines
2014-2016
 
Status
Continuous