NSE to change ownership as Kenya govt cedes 5.1pc stake
Saturday August 03 2013
Stockbrokers at the NSE trading floor. The stock exchange will soon demutualise after an agreement was reached on shareholding. Photo/FILE
After a series of false starts, the process of changing the ownership of the Nairobi Securities Exchange (NSE) is back on track after an agreement was reached on shareholding.
The process, known as demutualisation, has been delayed for several years, by disagreements between stockbrokers — who are the current owners of the stockmarket — and the government, which initially appeared determined to have a bigger stake in the company — over share allocation. A June deadline recently passed without any tangible development.
READ: Row erupts over Nairobi bourse ownership
Demutualisation refers to the process of extending ownership of a stockmarket beyond brokers in an effort to bring about better governance and accountability, among other advantages.
But the latest indication is that the government side — principally market regulator Capital Markets Authority and Treasury — appears to have ceded ground to the stockbrokers, in a move that could give the process new impetus.
“The issue has been resolved. An amendment to the Act was done, which means that NSE is only entitled to issue 10 per cent to the Capital Markets Authority’s Investor Compensation Fund (ICF). We are now in the process of transferring the 5.1 per cent earlier issued to the Treasury back to ICF. At this point, the exchange will then file to become a demutualised exchange under the CMA,” said NSE chief executive officer Peter Mwangi.
Under the revised terms, the government has ceded the 5.1 per cent earlier earmarked for it to the CMA’s ICF, a kitty which the regulator has traditionally used to compensate investors who lose their money as a result of malpractice or failure to meet contractual obligations by brokers or dealers on the NSE.
Domino effect
It would appear that the government and the CMA are keen to bolster the status and the liquidity of the fund, which came under the spotlight following the contagion that spread through the stockmarket in the early 2000s, taking down with it a number of local stock brokerage houses.
The ICF was then expected to, and went some distance, in refunding some of the investors who burnt their fingers by entrusting their money and investment decisions to the collapsed brokers and their employees. The culprit stockbrokers were Discount Securities, Nyagah Stockbrokers, Ngenye Kariuki & Partners and Francis Thuo & Partners.
The CMA’s books for last year, for instance, indicate that some Ksh11 million ($126,436) was due to investors who had invested their money through Nyaga Stockbrokers, which is under statutory management. The fund was worth Ksh422 million ($4.8 million), compared with Ksh277 million ($3.18 million) the previous year.
As part of the new terms for the demutualisation of the NSE, the CMA ICF will be expected to sell a portion of its stake to replenish its reserves after allocation.
According to Mr Mwangi, demutualisation would bring innovative technology to the bourse, foster globalisation, engender government deregulation and ensure competitive pricing pressure in the capital market.
A gazette notice by Cabinet secretary for National Treasury, Henry Rotich dated June 18, confirms the latest share configuration for a demutualised NSE.
It makes a fundamental change to the Capital Markets (Demutualisation of the Nairobi Securities Exchange) (Amendment) Regulations, 2013, by replacing the 20 per cent earlier earmarked for government with 10 per cent.
In exact terms, the new shareholding structure will be as follows: trading participants (stockbrokers and investment banks) 89.8 per cent and the ICF at 10.2 per cent. This from a previous level of 5.1 per cent for the ICF, a further 5.1 per cent held by government through Treasury and a residual 89.8 per cent for the stockbrokers and investment banks.
CMA chairman Kungu Gatabaki, who has in the past advocated a bigger stake for the government in a demutualised NSE, said he was aware of the revised shareholding and gazette notice by Mr Rotich, but stressed that his views on the matter remain unchanged.
“True, there has been some movement. However, I believe the government deserves a bigger role and stake in a restructured NSE. I believe it is the stockbrokers who should have ceded a stake to the government,” said Mr Gatabaki, who has been on record asking for as much as a 30 per cent stake for the state in a post-demutualisation NSE.