Market dealers, brokers say capital levels too high
An investor at the NSE office in Nairobi. CMA plans to improve trading of cross-listed securities. PHOTO | FILE
What you need to know:
Investment banks and brokers with a dealing licence, which allows an owner to deal on his own behalf, are required to have core capital of Sh250 million and Sh50 million, respectively.
Brokers without a dealing licence must have Sh30 million as capital.
Investment bankers have in the past raised concerns as the capital often lies idle in banks because it is not supposed to be used in day-to-day operations of the companies in most instances.
Capital market players have said the money required to operate in the industry is too high.
Investment banks and brokers with a dealing licence, which allows an owner to deal on his own behalf, are required to have core capital of Sh250 million and Sh50 million, respectively.
Brokers without a dealing licence must have Sh30 million as capital.
A survey by Capital Markets Authority (CMA) conducted among brokers, investment banks, fund managers, invest advisers, law firms, audit firms and other regulators shows that nearly 90 per cent of the respondents said they have challenges complying with the current regulatory requirements.
“One of the challenges identified in the survey is that capital requirement is too much,” said Daniel Warutere, the assistant manager for regulatory framework CMA.
Investment bankers have in the past raised concerns as the capital often lies idle in banks because it is not supposed to be used in day-to-day operations of the companies in most instances.
The survey involved sending questionnaires to 70 market players; only 31 responded. The respondents lamented the cost of compliance was too high, regulations too many, corporate governance too onerous and about lack of expertise to guide complex transactions.
The respondents said regulation should precede introduction of new products, but noted that excessive regulation may inhibit innovation.
“Regulation may be restrictive and scare investors,” said Mr Warutere.
He said some new products will still require new stringent regulations. They include instruments for use by county governments to raise cash, commodities, offshore funds, private placement of short-term notes and the over-the-counter market.
To address some of the challenges, acting CMA chief executive Paul Muthaura said the authority would focus on effective ways of communication and access to the regulations particularly through ICT.
It would also support harmonisation of regulatory and operational costs of listing and issuance in the region.
Mr Muthaura said the CMA would also improve trading of cross-listed securities.
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