Capital Markets Authority chairman Kung’u Gatabaki on April 27, 2012 said that the regulator needs more time to set up futures markets.
The Capital Markets Authority (CMA) is seeking fresh applications from consultants to set up a futures market, which may delay establishing the exchange by June.
The regulator had advertised for the bids last year and set a target to have rules for the futures exchange ready by June.
The Capital Markets Authority chairman Kung’u Gatabaki on Thursday said that process had not been finalised since some bidders, especially those from abroad, had said the advert did not have enough information on what the regulator was looking for.
A futures market is expected to stabilise food prices, especially grains, which fluctuate widely during harvest and low seasons.
“We wanted to be sure that the bidders know exactly what we are looking for,” said Mr Gatabaki.
Producers of maize, beans, coffee, tea, and other agricultural commodities normally sell their produce at low prices to middlemen during the harvesting season to cut on losses.
Mr Gatabaki said that the exchange is expected to be in place before year-end, if all goes as planned.
Price volatility reduces crop yields by discouraging farmers from planting for fear of making losses.
The consultant will be expected to draft trading and oversight rules for the futures market and advise on international best practices.
“The government, through the Capital Markets Authority, is keen on licensing a world class futures exchange to be established in Kenya,” said CMA in a press statement.
The consultants will also set rules to identify and procure a firm that will establish a demutualised futures exchange.
“Kenya certainly needs this market since we are very exposed to price volatility but its vibrancy will depend on whether we have enough demand for the service,” said Standard Investment Bank executive director John Kihumba.
The futures exchange is expected to bring transparency in the market since it will provide a central place for buyers and sellers, helping improve price discovery.
“Currently, if you call a number of commercial banks for currency quotes, you will find there is a large variation in their quotes,” said Kestrel Capital executive director Andre DeSimone.
Nairobi Securities Exchange (NSE) deals only in spot trades.
The successful bidder will also oversee the development of an operational framework for warehousing system to address storage, bulk handling and preservation of commodities necessary for smooth running of a commodities exchange market.
The National Cereals and Produce Board has built a warehouse system where farmers bring their commodities to the store in exchange for a receipt, which could be used as guarantee for loans but its yet to get critical numbers of willing farmers.
Global Board of Trade, a Mauritian company, launched a currency and commodities exchange last October targeting investors from Kenya and other countries.
Kenya’s capital markets has expanded in the last 10 years with the NSE attracting a significant number of initial public offers and corporate bonds.
