Capital Markets Authority acting CEO Paul Muthaura at a past event. The CMA has issued capital and licensing rules for investors in futures market. FILE
What you need to know:
The requirement is contained in a raft of regulations published by CMA to facilitate establishment of a market for trading commodities and currencies.
A futures market is expected to boost farmers’ earnings by helping to stabilise prices of commodities.
The exchange is also expected to introduce trading of derivatives and futures currency contracts.
The capital markets regulator has set the minimum capital requirement for investors seeking to set up a futures exchange at Sh1 billion.
The requirement is contained in a raft of regulations published by the Capital Markets Authority (CMA) to facilitate establishment of a market for trading commodities and currencies.
“An applicant seeking a licence (for futures exchange) shall have an authorised ordinary share capital of Sh2 billion and a minimum paid up share capital of Sh1 billion,” says the draft rules signed by the CMA acting chief executive Paul Muthaura.
A futures market is expected to boost farmers’ earnings by helping to stabilise prices of commodities which tend to fall sharply during harvest when there is a supply glut. The exchange is also expected to introduce trading of derivatives and futures currency contracts.
The draft Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations 2013 dated April 30 will be up for public debate until May 31 to give the regulator recommendations that should be incorporated in the final draft for tabling in Parliament.
Despite having the most developed financial market in the region Kenya still lags behind Uganda and Ethiopia which have more developed commodities exchanges. The Uganda Commodities Exchange was formed in 1998.
“The most important consideration when selecting a company to operate the exchange is its experience and expertise to run this sort of enterprise,” said Coronet Africa country director (Kenya) Mark Mwaura. “In Uganda, the company running the exchange was selected on the basis of its experience and not really on its financial profile.”
Coronet Africa is a Uganda-based firm that deals in financial structuring, warehousing and logistics for commodity trading.
Mr Mwaura, however said that physical structures must first be put in place before the necessary laws are passed. The Nairobi Securities Exchange (NSE) is, however, already gearing up for a futures exchange market.
In late February the NSE became an associate member of the Association of Futures Markets, a Budapest-based organisation that helps in the developing and establishment of derivatives and related markets globally — indicating that it may be interested in applying for a licence to run a futures exchange.
The CMA rules are also proposing that local investors get an ownership slice of the proposed exchange.
“At least 15 per cent of the paid up equity share capital of a licensed futures exchange shall be held by a Kenyan entity,” say the draft regulations. Currency dealers said that the proposed futures market will make it easier to introduce more products which should deepen forex trading.
“At the moment it is very difficult to price the currency for four to six years because there is a lot of discrepancies in the market,” said Bank of Africa’s head of trading Peter Mutuku.
The CMA appointed Assim Jang, a futures expert who has worked in the UK, the US, and Pakistan, to develop a market for Kenya, in January.
