Capital markets regulator moves to curb fraud at bourse market

Keen on shedding its image as a toothless regulator, the Capital Markets Authority (CMA) is talking tough in a fresh bid to rid the local capital markets of malpractices.

Reducing the market dominance of a few players, flagging out former employees accused of fraud and the planned launch of a surveillance system to keep tabs on peculiar trades at the bourse are all part of a wider CMA driven plan to stem fraud at the bourse.

Coming a month after yet another brokerage house—Ngenye Kariuki Stockbrokers—was placed under statutory management in almost similar circumstances as three other firms since 2007, the CMA has been hard-pressed to clamp down on malpractices at the bourse.

While admitting that the CMA has had a murky history bedevilled with a number of market scandals, CMA chairman, Micah Cheserem a highly respected former Central Bank of Kenya governor is keen on exerting the regulator’s influence in the capital markets.

Wayward players

“Those few [market players] who break the laws and regulations will be sanctioned promptly,” says Mr. Cheserem.

The CMA finds itself at crossroads as it seeks to fast-track proposals that will reign in wayward market players, thus gaining the much needed credibility needed to restore investor confidence at the bourse.

After a turbulent year in Kenya’s capital markets, recent moves by the market regulator are igniting a flicker of hope that 2010 might be a better year for investors.

But to the hundreds of investors still reeling from stock market scandals in the past few years, this might sound like a broken record.

Mr. Cheserem also plans to change the ownership structure of brokerage firms and investment banks and the huge influence some market players have had in the capital markets.

“The dominance by one individual player or prime mover is part of poor governance,” says Mr. Cheserem.

Personal businesses

Proposals to introduce a 25 per cent maximum cap on the shareholding and control of any licensed institution within three years is widely expected to shatter the strangleholds that have led to market players running firms as personal businesses.

To strengthen this proposal is another, moving to bar any individual who controls directly or indirectly 25 per cent of the issued share capital or its equivalent from holding a management position in a stockbroker or investment bank.

A case in point is a vast number of brokerage firms in the Kenyan capital market whose owners are also managers in the outfits and the cartel-like behaviour among certain market players that has raised suspicions of insider trading.

“We cannot tell how rampant insider trading currently is, but we suspect that it must be taking place. The CMA is, however, going to be more vigilant in identifying to what extent it goes,” says Mr. Cheserem.

While it remains to be seen whether the proposals will be realised, analysts say these are small, but steady steps towards streamlining market operations and ensuring the integrity of the capital markets.