The capital markets industry is governed by the Capital Markets Act (and the regulations thereunder). The Act specifically establishes the Capital Markets Authority (CMA) which is responsible for regulation, promotion, and development of the capital markets in Kenya. CMA licenses investment banks, stockbrokers, dealers, fund managers and investment advisers.
The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations provide for the requirements for public offerings of shares of a company. A company offering its shares to the public is required to publish an information memorandum (with requisite disclosures) and have the company scrutinized by qualified persons including financial experts and lawyers.
Any company that wishes to offer securities to the public or list its shares must comply with the eligibility requirements set by the regulations. Due to the restrictions imposed on private companies by the Companies Act, No. 17 of 2015 only public companies limited by shares can be listed in Kenya. Listed companies have continuous obligations to disclose information that will materially affect market activity and the prices of their securities.
The Nairobi Securities Exchange (NSE) is the only exchange in Kenya. The NSE is authorized to operate and is regulated by the CMA. NSE deals in the exchange of securities of listed companies, state corporations and government. The membership of NSE is restricted to stockbrokers, dealers, investment banks, authorized securities dealers and other institutions as may be approved by CMA from time to time. Trading at the NSE is done through the Automated Trading System.
Central Depository System
In Kenya, the Central Depository & Settlement Corporation Limited (CDSC) is approved by CMA to provide automated clearing, delivery and settlement facilities in respect of transactions carried out at NSE as well as holding of listed and non-listed securities including other documents of title on behalf of investors. The Capital Markets Act, requires investors wishing to trade in listed companies to have a central depository system account operated by Central Depository Agents.
Insider trading is an offence where a person in possession of privileged information which is material, price sensitive and non-public uses that information either to trade in securities relying on that information or discloses the same to another person who trades based on the information or encourages someone else to trade relying on the same information for gain or to avoid loss.
Takeover and Mergers
Takeovers and mergers of listed companies are regulated by the Capital Markets (Takeover and Mergers) Regulations. Any offer to acquire effective control of a listed company must be done in accordance with the regulations. Effective control is where a person either directly or indirectly holds more than 25% of shares or voting rights of a listed company.