Key aspects addressed by the Capital Markets Act and the Central Depository Act

Key aspects addressed by the Capital Markets Act and the Central Depository Act

CAPITAL MARKETS ACT

The Capital Markets Authority is a Government Controller that is charged with not only licensing but regulating the capital markets in Kenya. It is also charged with approving the public officers and listing of securities that are traded at the securities exchange markets. It was set up in 1989 through the Act of parliament.

RULES AND REGULATIONS RELATING TO THE CAPITAL MARKETS ACT

1.PROVISIONS RELATING TO SECURITIES EXCHANGES

• A person is not allowed to carry on a business of securities exchange od hold himself out as providing or maintaining stock market unless the person has been approved by as a security exchange by the Authority in such a manner that the Authority may prescribe.
• The Authority shall make an application for the securities exchange approval in the form and manner that is described by the Authority and should be accompanied by the prescribed fee.
• The board of directors of the security exchange should comprise five people elected among the brokers and dealers, two people chosen to represent the listed companies, three persons who know investments, and the chief executive of the securities exchange.
• The rules of an approved securities exchange, in so far as the Authority has approved them, shall not be amended, varied or rescinded without the prior approval of the Authority.
• Where a securities exchange reprimands, fines suspends or expels, or otherwise takes disciplinary action against a member or listed company, it shall within seven days give notice to the Authority in writing, giving particulars including the name of the person, the reason for and the nature of the action taken.
• An approve securities exchange shall comply with all the requirements of the Authority and pay an annual fee to the Authority at such rate as the Authority may prescribe.

2.SECURITY INDUSTRY LICENCES

• No person shall carry on business as required. Stockbroker, dealer, investment adviser, fund manager, investment bank, authorized securities dealer, authorized depository, or hold himself out as carrying on such a business unless he holds a valid license issued under this Act or the Authority of this Act.
• An application for a license or the renewal of a license shall be made to the Authority in the prescribed form and shall be accompanied by the prescribed fee and in the case of an application for the renewal of a license, may be made within three months but not later than one month before the expiry of the license
• In granting a renewal of a license, the Authority shall satisfy itself that the licensed person complies with the provisions of this Act and the rules and regulations made thereunder.

The Authority shall – register of license holders, before the thirtieth day of April each year, cause the names and addresses of all persons licensed or approved during the current year to be published in the Gazette; and within thirty days of revocation of a license 35, cause the names of any persons whose license is revoked to be published in the Gazette.

• The Authority may revoke a license or approval of consent if it is satisfied that the licensed or approved person, has contravened or failed to comply with any provisions of this Act or any rules or regulations made thereunder; has ceased to be in good financial standing, has since the grant of the license, ceased to qualify for such a permit, is guilty of malpractice or irregularity in the management of his business, is adjudged bankrupt.
• Where – Report changes, the holder of a license ceases to carry on the business to which the license relates; or a change occurs in any particulars which are required by section 27 to be entered in a register of license-holders concerning the holder of a license, the holder of the license shall within fourteen days of the occurrence of the event concerned, give to the Authority, particulars of such event.

3.SECURITIES TRANSACTIONS AND REGISTERS.

• No person shall, in Kenya, offer its securities Information for subscription or sale to the public or a section of Memorandum the public unless, before such offer, it publishes an information memorandum signed by or on behalf of its officers and files a copy thereof with the Authority.
• Every information memorandum shall comply with such requirements as may be prescribed by the Authority: Provided that nothing in this section shall be construed to apply to an information memorandum issued by a cooperative society incorporated under the Cooperative Societies Act to raise capital from its members.
• No licensed person, broker, or dealer shall engage in securities transfer-listed securities outside the securities exchange of which he is a member except as provided for by the Authority in rules or as authorized by the Authority on a case by case basis, and on payment of a prescribed fee.

4.INSIDER TRADING

• No insider shall either on his own behalf or behalf of any other person, deal in securities of a company listed on any stock exchange based on any unpublished price sensitive information,
• An insider should not communicate any unpublished price sensitive information to any person, with or without his request for such information, except as required in the ordinary course of business or under any law
• No insider should counsel or procure any other person to deal in securities of any company based on unpublished price sensitive information.
• Any insider, who deals in securities or communicates any information or consults any person dealing in securities in contravention of the provisions of subsection shall be guilty of insider trading.
• A person who is, or at any time in the preceding six months has been, connected with a body corporate shall not deal in any securities of that body corporate if because of his being, or having been, combined with that body corporate he has information that is not generally available but if it were, would likely materially affect the price of those securities.

AMENDMENTS RELATING TO THE ACT

1. The Capital Markets Act, (in this Act referred to as Amendment of the principal Act) is amended in section 2 in the – section’ of definition of “key personnel” by inserting the words “of licensed persons and chief financial officers and Board of Directors of issuers of securities” immediately after the name “manager.”
2. Section 11 of the principal Act is amended in a subsection, (3), by deleting the phrase “insecurities” and 11 of Cap. Substituting, therefor the with the words “in an issuer and its securities” in paragraph (t).
3. Section 1 3B of the Capital Markets Act is amended in the following ways
4. in subsection (1), by deleting paragraph (b) and substituting therefor the following new paragraph
5. a director, manager or employee of a licensee, approved person or an issuer or any other person, may have engaged in embezzlement, fraud, misfeasance or other misconduct in an issuer, licensee or approved person in connection with its regulated activity.
6. By adding the following new subsection immediately after subsection (3)- (4) The Authority may, where satisfied that the capital markets or an investor shall suffer irreparable damage as a result of an’ activity under subsection (1), impose an interim measure for not more than three months to prevent further damage pending completion of an of inquiry.
7. Section 35A of the Capital Markets Act is amended by deleting subsection (4) and substituting therefor the. Following new subsection- (4) The Tribunal shall, upon an appeal made to it in writing by an aggrieved party following a determination by the Authority on any matter relating to this Act, inquire into the matter and make an award thereon, and every award made shall be notified by the Tribunal to the parties concerned and the Authority as the case may be.
8. The Capital Markets Act is amended by Insertion of the following new section immediately after section 32
9. Any person in a market intermediary who has insider information on client orders with a price differential or is aware of such rules and effects an own account transaction in the securities concerned or in any related investments directly or through any other person, to take advantage of the price differential before the client order is executed commits an offense.
10. Any other person who facilitates the commission of the offense refers. Referred to in subsection (1) commits a crime.

CENTRAL DEPOSITORY ACT

The central depository act is an act of parliament formed to facilitate the establishment, operation, and regulation of central depositories, to provide for the immobilization, and eventual dematerialization of and dealings in securities deposited. The Act came into service from 2000.

RULES AND REGULATIONS RELATING TO THE ACT

1. The central depository act makes rule relating to;
2. Settlement of transactions involving securities;
3. The proper regulation and efficient operation of the clearing facility which it operates;
4. Its default process;
5. The establishment of a settlement guarantee fund;
6. The qualifications for appointment of central depository agents;
7. The proper regulation and supervision of its agents;
8. The exclusion from participation as central depository agents of persons who are not fit and proper; the expulsion, suspension or disciplining of a central depository agent;
9. The carrying on of the business of a central depository, having regard to the interests and protection of the investing public

AMENDMENTS OF THE ACT

1. The Central Depositaries Act, 2000, in this Act referred to as the “principal Act,” is amended in section 2, by deleting the definition of “central depository” and substituting therefor the following new definition-“central depository” means a company licensed by the Authority to, establish and operate a system for the central handling of securities.
2. The principal Act is amended in Part 11, by inserting the following new section immediately before section 3, functions of the Authority which include taking such measures as are necessary to ensure that the provisions of this Act are complied with;
3. A company incorporated under the Companies Act, which proposes to operate a central depository, shall apply to the Authority in writing to be licensed as such.
4. The Authority shall, in determining whether a person is fit and proper under section 4(5), consider the financial status or solvency of that person, among other factors.
5. . The principal Act is amended by repealing section 5 and replacing it with the following new section, in granting of a license, The Authority may, in writing, subject to such conditions or restrictions as it may consider proper to impose, license a company as a central depository if it is not contrary to public interest to do so and the Authority is satisfied that the company.
6. The principal Act is amended by inserting the following new section immediately after section 5, the rules of central depository which include central depository shall make CDS Rules providing for —(a) deposit, registration and transfer of securities and settlement of transactions involving securities.