Regulator orders stock firms to declare stake in Nairobi bourse IPO sale pitch

The Capital Markets Authority (CMA) has ordered stockbrokers and investment banks to declare ownership in the Nairobi Securities Exchange (NSE) when advising clients to buy the shares.

Acting chief executive officer Paul Muthaura said some of the intermediaries have failed to disclose their proprietary interest and status as trading participants at the NSE in the notes, potentially bringing up a conflict of interest.

The NSE, previously largely owned by brokers, is currently selling shares in an initial public offering (IPO) that opens ownership to retail investors.

READ: NSE launches IPO with expansion on the cards

“All investment banks, stockbrokers, investment advisers, and fund managers are required to make the disclosures in their advisories, reports or such other publications relating to the NSE shares in respect to their status as a trading participant at NSE and shareholding in the NSE,” said Mr Muthaura in a circular.

“The authority shall proceed to take appropriate regulatory and/or administrative action against any person for any noted non-compliance with the above practice directives.”

The regulator noted the disclosure obligations are contained in both the capital markets licensing requirements regulations and the conduct of business regulations for market intermediaries.

The CMA did not, however, state the specific action to be taken against those intermediaries without the disclaimer in their reports.

Stockbrokers and investment banks collectively hold 115.5 million shares in the demutualised NSE, representing 54.35 per cent of the issued shares with each having a 4.08 per cent stake.

The 19 licenced intermediaries are also listed as transaction advisers for the IPO issue.

The stock exchange is selling a 31 per cent stake (66 million shares) to the public at an offer price of Sh9.50, looking to raise Sh627 million.

The market intermediaries normally issue coverage notes to their clients during an IPO, giving own analysis on the company balance sheet, risks, growth potential and a fair value projection of the stock price.

Several brokers have sent such notes to their clients on the bourse IPO, mostly giving a positive outlook on the stock with upsides of between 20 and 49 per cent on the issue price of Sh9.50.

Old Mutual Securities sent a disclaimer note to its clientele Thursday afternoon after the CMA directive stating its interest as one of the existing shareholders at the NSE.

“We would like to disclose that Old Mutual Securities is a trading participant at NSE and owns 4.08 per cent stake in NSE,” said Old Mutual Securities.