CMA seeks full control of futures market

The capital markets regulator has published draft rules for the proposed futures market, pulling the plug on the NSE’s attempts to have control over the planned exchange.

The draft rules published on Monday by the Capital Markets Authority (CMA) show the regulator will retain powers to license brokers and approve the listing and trading of all futures market contracts.

The Nairobi Securities Exchange had in a presentation made to MPs earlier this year pushed for amendment of the CMA Act seeking to be allowed leeway to develop, list and trade futures contracts.

The CMA however made a strong response asking MPs to allow it to retain all regulatory powers over the proposed exchange.

“Every futures contract shall be approved by the Authority under the Act and these regulations prior to becoming eligible for listing on a futures exchange...the futures exchange shall submit an application for approval of a standardised futures contract with the authority,” said CMA in the draft Capital Markets (Business of Futures Contracts) Regulations 2013.

The proposals are up for public discussion and comments by stakeholders and the general public for the next 30 days.

The NSE had sought an amendment in the Capital Markets Amendment Bill 2013 stating that an approved securities exchange ought to be allowed to develop its own futures contracts.

Futures contracts

The amendment sought by the stock exchange stated that “the exchange may develop, list and trade futures contracts, provided the regulator may amend the contracts if they contain risks that have not been adequately mitigated.”

“The NSE currently has the capacity to develop, assess and list the futures contracts since, the current licence allows it to list and trade futures contracts,” said the NSE in a presentation before the Parliamentary committee on Finance, Planning and Trade on July 23.

CMA is however insistent on checking on the standardised contracts before their listing for approval, with more powers to order further amendments if it finds any deficiency in the application or operationalisation of the approved contracts.

“If the futures exchange has failed to comply with any of the prescribed condition or requirement and/or that the continued listing of the standardised futures contract would not be in the public interest, the Authority may direct the futures exchange to correct the deficiency or comply with the prescribed condition or requirement within the time specified in the order or amend the specification of any standardise futures contract,” says CMA in the draft regulations.

In a replying memorandum before the parliamentary committee filed on August 8, CMA said that while the futures exchange could come up with the specifications of the futures contracts which in their view would be successful, the final approval of the regulator shall be required prior to listing of all futures contracts.

CMA Acting Chief Executive Paul Muthaura noted that some of the policy recommendations taken into consideration in drafting the regulations include a need to develop a deep and liquid futures market while providing a level the playing field to all.