Kenya has moved to strengthen the capital markets regulatory framework to protect investors from increasing cases of malpractices.
President Uhuru Kenyatta has assented to Capital Markets (Amendment) Bill 2018 that among other things, will help the markets regulators deal with corporate governance, embezzlement of investor funds, front running and provision of misleading information.
Apart from protecting investors, the law is expected to restore investor confidence in Kenya’s capital markets, which last year saw a massive performance drop.
Although the poor performance was attributed to a tough economic environment, the increasing cases of malpractice by market intermediaries, particularly insider trading, dented Kenya’s stockmarket.
Insider trading occurs when a person buys or sells the shares of a listed company while in possession of confidential information not generally available to the public and which is likely to affect the price of the share.
In October last year, for instance, the Capital Markets Authority was forced to launch investigations into alleged insider trading in KenolKobil shares, a day after French oil firm Rubis Energie announced a takeover bid for the regional oil marketer.
Kenolkobil’s share price jumped more than 30 per cent to a record high of Ksh21.75 ($0.21) per share, with the volume of share trading rising to 373.46 million from 29.51 million a day earlier.
“Through its market surveillance, the authority identified potentially irregular trading of the KenolKobil counter in the run up to the issue of the notice of intention by Rubis Énergie,” said CMA.
The new amendments in the Capital Markets Act now empower the CMA to take tough actions on market players engaging in any form of malpractice.
Key among there is that a person in a market intermediary who has insider information on client orders with a price differential or is aware of such orders and effects an own account transaction to take advantage of the price differential before the client order is executed, commits an offence.
“Any person who on his own action or conspires with another by deceit, intentional concealment, omission or any fraudulent means to obtain financial or personal gain from the public, an issuer or a regulated person commits an office,” adds another key amendment.
To encourage investors to join the fight against market malpractices as whistleblowers, the new law introduces a reward scheme in which reporting cases of malpractice will attract up to a $50,000 reward.
It is worth noting that despite launching a whistleblower portal in 2016 to give investors an opportunity to share anonymous but verifiable evidence to support CMA’s investigation and enforcement efforts, the response has been unenthusiastic
“The reward payable shall be three per cent of the amount recovered subject to a maximum of five million shillings, and shall be paid before the recovered sums of money are transferred to the fund,” it states.
CMA contends that the strengthening of the regulatory framework is critical in turning around the fortunes of Kenya’s capital markets, which continue to face inherent risks like high concentration tradingon a few counters, low liquidity and low product uptake.