CMA acting chief executive Paul Muthaura (left) and NSE chief executive officer Peter Mwangi. FILE
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The CMA argues that giving the NSE some of the powers it is clamouring for would amount to undermining its regulatory authority.
The capital markets regulator has opposed an attempt by the Nairobi Securities Exchange (NSE) to gain more powers through a legal amendment that could hand the bourse authority to set rules, veto admission of new trading participants to the exchange and determine fees.
In a detailed memorandum submitted to Parliament, the Capital Markets Authority (CMA) shoots down a presentation that was made to legislators by the NSE, while also refuting claims that it had single-handedly proposed changes to capital market laws detrimental to the bourse without consulting stakeholders.
The CMA argues that giving the NSE some of the powers it is clamouring for would amount to undermining its regulatory authority.
The regulator argues, for example, that its oversight on setting of fees is important especially now that the NSE is moving towards becoming a profit-driven entity following its conversion into a limited company.
“We note that the NSE is undergoing the final stages of demutualisation, which upon completion, will other than separating ownership of the exchange from management, convert the exchange to a profit-driven entity.
“This only serves to fortify the oversight of any fees that the exchange would wish to introduce to further scrutiny and public participation prior to establishing such fees,” said the CMA in the memorandum to the Parliamentary Committee on Finance, Planning and Trade.
The NSE had argued in its presentation made to the committee last month that allowing exchanges to set market fees is an international best practice that is in place in South Africa, Taiwan, Spain, England and the US.
CMA added that regulation of market fees is critical in a developing economy like Kenya, as the introduction or revision of fees inevitably has a direct impact on market activities hence the need for the regulator to set them.
“The Authority must remain empowered to vet any fees proposal by any securities exchange in order to ensure that there is a proper justification for any proposed fees as well as maintain fairness and remove any barriers for investors and market players to participate in capital markets,” says CMA.
Other than the proposal to be allowed to set market fees, the NSE also wanted to generate market-driven rules. It also sought a grace period of five years to carry out the business of a futures exchange until it is able to conform with new regulations for entities seeking the licence.
CMA defended the requirement that the NSE submits its draft rules for approval on grounds that it needs to protect investors and ensuring that markets are fair, efficient and transparent.
On the exemption from regulations on futures markets, CMA says requirements regarding margining, segregation, clearing and settlement infrastructure, Central Counterparties (CCP), Settlement Guarantee Fund (SGF), Investor Protection Fund (IPF) must be in place at the NSE prior to permission being granted.
The regulator also insists on vetting stockbrokers and NSE systems to test their preparedness for futures trading before authorisation can be granted.
Further, the NSE had sought the deletion of an amendment making it mandatory for the exchange to admit as trading participants all applicants who meet the requirements set by CMA and pay all requisite fees.
“The NSE should be allowed to scrutinise and vet all applicants to be considered as trading participants,” said the NSE in its proposals before the committee.
CMA, however, says that making it mandatory to admit all applicants who meet the requirements would ensure that a securities exchange does not impose unknown arbitrary requirements with the intention of blocking an applicant from getting the licence to trade on its platform.
