Why stockbrokers face challenges

The misfortunes of several stockbroking firms in the past few years that resulted in their collapse, forced sale or takeover is now a well known tale that has dominated social discourse for some time.

The extent to which their misfortunes were the result of unethical behaviour, fraud, theft, mismanagement where proven cannot and should never be defended by anybody.

The untold suffering of particularly small investors who had entrusted their investments to these firms is indeed the greatest casualty of these past events.

The Kenya Association of Stockbrokers and Investment Banks (Kasib), which represents the interests of market intermediaries who are members of the Nairobi Stock Exchange and are key stakeholders of the local Capital Markets, shares the frustration of all market participants at having one of our members, the firm of Ngenye Kariuki and Company placed under statutory management.

The action goes against the recent positive trend captured in a resurgent market, improved regulatory measures that the industry has embraced and deals a huge blow to these gains.

Kasib has been aware of some of the challenges being faced by Ngenye Kariuki and Co and the reasons that may have occasioned them.

Further we have been able to clarify the stated reasons for the action taken by the Capital Markets Authority (CMA) and the extent to which the firm may have been unable to meet its continuing and primary obligations to its clients.

The picture that emerges is that of a firm, like many others in the industry, that has had to bear the brunt of a depressed market and crucially the continued falling out of the various mishandled aspects of the landmark Safaricom IPO.

What is surprising is that the CMA action was not backed by evidence to support the conclusion that the firm is unable to meet its continuing obligations to its clients.

There does, however, appear to be justified concern about the stability of the financing arrangements the firm has adopted to survive the lean market period and this may very well be the basis for what should be viewed as pre-emptive action.

That discretion, however, has fomented the situation by exposing investors at the firm to huge opportunity costs, inconvenience, anxiety and uncertainty about the state of the industry and the safety of their investments held through the firm.

Kasib admits that there will be occasions where it is in the best interest of investors and the industry at large to intervene in the management of an intermediary.

This would be in situations where unethical behaviour, fraud, theft, and mismanagement have been proven.

While such powers must be retained for the good of the market it must be wielded with recognition of the peaks and troughs of a cyclical business like ours, isolated market events and the red flags that herald the imminent breakdown in the structure of a firm.

Above all else such decisions should be justified and explained as being in the considered public interest.

We also wish to highlight the unresolved challenges generated by the handling of the Safaricom IPO by the receiving bank.

With due respect, our view is that the bank has been the major stumbling block to the resolution and release of colossal sums of money due to investors through market intermediaries.

It is not difficult to connect the unresolved status of this issue with the liquidity challenges at Ngenye Kariuki and Company.

Kasib would like to appeal to CMA to balance between the needs of investors with those of perceived creditors not directly related to the business and who have their own protection in law.

They should exercise their mandate and discretion within the letter of the law and to do justice to all concerned.

Our industry, which is a core element in one of the pillars of the Vision 2030, is in danger of descending into a theatre of the absurd where policy is abused and lopsided public opinion holds sway.

The misdeeds of the past cannot be excused.

Kasib condemns the business practices that led to the collapse of Nyaga Stockbrokers, Francis Thuo and Discount Securities.

Kasib also condemns the ineffective application of existing market rules and regulations that allowed some of these cases to run an exceptionally long course.

The rules were crafted to ensure the stability and growth of the industry.

A decision such as that on Ngenye Kariuki that does not have as its goal investors confidence and the ultimate reinstatement of the firm concerned runs against this spirit.

The one month moratorium to sort out affairs at the firm for instance seems unjustified given that the business of the firm is both unaffected and unrelated to its relationships with its financiers.

The safety of Kenyans investments is our primary concern.

Our members’ businesses suffer greatly whenever this is called into question and no one is more motivated to ensure not only that investors can transact their business with security but further that their investments would bring them reasonable returns.

The belief that the industry is a cabal of closed minded individuals is one, which if it ever did, no longer holds true.

Njeru is the chief executive, Kasib: jane@kasib.co.ke