The Capital Markets Authority board has declined a petition by the Nairobi Securities Exchange (NSE), which sought a law change to allow the NSE board to determine the term limits for its chief executive and chairperson.
The market regulator says the proposal was not considered by the board on what it termed ‘governance’ issues.
“This has been an earlier request, but the issue was that NSE is both a licensee and a listed company. It was felt that for good governance, the term limit is retained,” CMA chief executive Wycliffe Shamiah told the Business Daily on Tuesday.
However, the NSE demanded to be freed from these regulations by virtue of being a self-listed entity, citing the need for continuity as the reason behind the request to scrape the term limits.
Currently, the NSE chief is expected to serve for eight years and the chairperson for two years under the CMA regulations, which only guide the term limits for the directors of the 70-year-old exchange.
However, the term limit for the chairperson of the exchange has since been reviewed to two terms of three years each, effectively putting it at a maximum of six years. Current NSE chairperson Kiprono Kittony was appointed to the position effective July 13, 2020, and in June 2022, his contract was extended by a further one year.
Early this year, NSE appointed Frank Mwiti as the new chief executive, effective May 2, to replace Geoffrey Odundo, who exited on March 1.
Mr Odundo was hired as the CEO of the exchange in March 2015 from Kingdom Securities, the stock trading arm of the Cooperative bank.
His term ended in March 2023 but was handed a one-year extension until March 1, 2024, because he was the right person to oversee the restructuring of the exchange.
Usually, for firms that are listed on the exchange their directors and shareholders determine the term limits for their CEOs and chairpersons, a move that has made it possible for some CEOs to hold office for more than 20 years.
CMA’s latest position on the NSE proposal is, however, a reflection that the regulator is uncomfortable with this trend and is keen not to replicate it with its licensee (NSE plc) due to governance issues.
In October 2022, the NSE petitioned the regulator to amend regulations that impose limits for its CEO and allow the bourse to determine the term limits for its CEO and chairperson. It argued that it needed to exonerate itself from being a CMA licensee by virtue of its being a self-listed entity.
If the proposal was successful, the NSE board and shareholders would have had the power to determine the term limits for their chief executives and board chairs.
“Usually in listed companies, the issue of term limits rests on the board members and shareholders in line with the Companies Act. However, in this case, we are saying yes, it is true NSE is a corporate entity that is listed but it is also a licensed entity,” said Mr Shamiah in an earlier interview.
The 70-year-old exchange demutualised and self-listed in 2014, allowing the public to own shares in the company, which was previously wholly owned by trading intermediaries (stockbrokers).
However many of the stockbrokers and investment banks —which after listing each held a stake of 2.7 percent in the bourse— have since sold their shares either fully or in part.
CMA in collaboration with the National Treasury are instituting reforms to spur fresh interest in the bourse that registered a frenzy by both small and big investors during the late President Mwai Kibaki’s regime but activities have since diminished.
Amongst these reforms include the introduction of electronic IPOs and the relaxation of rules on the profitability of firms seeking to go public in the main investment market segment.
It also allowed the entry of Special Purpose Acquisition Companies (SPACs) to help counter the growing influence of Private Equity (PE) firms, which have drawn investors leaving the markets dry.
The equity markets turnover declined by 6.35 percent to Ksh 88.2 billion in 2023 from Ksh94.2 billion in 2022, while turnover in the bond market declined by 13.2 percent to Ksh 643 billion, from Ksh. 741 billion in the same period due to reduced valuations on already issued bonds, and as investors opted to hold high-yielding bonds, issued in 2023, to maturity.
NSE Plc’s net profit however grew by 34 percent to Ksh18.4 million from Ksh13.72 million as a result of a shift in strategy to non-trading income that was lifted by the data vending business.
Revenues from the sale of data grew by 24.7 percent to Ksh116.6 million from Ksh93.5 million.
In 2022 NSE’s net profit declined by 89.64 percent to Ksh13.72 million from Ksh132.53 million in 2021.
“Our expectation on business performance in the year 2024 remains positive and the Board is keen on deploying a multifaceted strategy that will enhance an accelerated recovery of business performance. The Board continues to place special focus on driving new growth opportunities, especially in non-trading revenue streams to ensure that the business remains adequately cushioned against market volatility,” says NSE.
“This year, we envisage several listings on the Main Investment Market Segment (MIMS) which in effect will offer more opportunities to our investors and enhance market liquidity.”
NSE has 66 listed firms of which five (Marshall East Africa Ltd, Hutchings Biemer, A. Baumann, KenolKobil Ltd and National Bank of Kenya) have been delisted while four (Deacons, ARM Cement, Mumias and Kenya Airways) are suspended.
CMA has sanctioned the implementation of the contentious recovery board for ailing companies listed on the exchange with an aim of eradicating financially distressed firms from the stockmarket.
The policy shift which has been in the works since 2018 seeks to protect investors from buying shares in troubled firms, avert unexpected company failures and help revive investor confidence in the volatile equity trading business.
CMA, through a special issue of the Kenya gazette supplement No 204, authorized the NSE to prepare and submit for approval the rules for the administration of the recovery list, including rules on the setting up of a recovery board on which the shares of the troubled firms on the recovery list may be traded.
