Kenya’s capital markets regulator has opened investigations into the conduct of Commodity Market Exchange (CMX) founder and chief executive Jacob Maaga, following complaints from the Zambian Securities and Exchange Commission for which the company's operations in Lusaka were suspended for breach of trading rules.
The move is part of efforts by regulators within Comesa to enhance integrity and better governance in the operations of capital markets through exchange of information within the 21-member bloc.
The Capital Markets Authority (CMA) says it is carrying out due diligence to establish the veracity of the allegations raised against the dealer, who has applied for a licence to set up a commodities exchange in Kenya.
The proposed derivatives and securities exchange is expected to create a secure and transparent platform for trading of commodities such as agricultural products, petroleum products, metals and financial instruments in Kenya. It will connect farmers, brokers, traders and financial institutions to trade in these commodities.
“When he (Jacob) applied for a licence, we got in touch with our peers in Zambia and they came back with a number of issues which they said they really wanted him to clear. We normally require explanations from the people who have been (adversely) mentioned, so we asked Jacob to look at that,” CMA chief executive Wycliffe Shamiah told The EastAfrican.
“The Zambians raised the issue that they had complaints on the running of this exchange and they needed him to address those issues. We have received the complaints and we are going to confirm part of this information independently through other parties and that is the issue of due diligence.”
Trading suspension
The Zambian capital markets regulator suspended from trading Panex Commodity Exchange Zambia Ltd and the Bonds and Derivatives Exchange Zambia Plc (BaDEX) owned by the Kenyan dealer through Gazette Notice No.351 of 2019, citing breach of law and engagement in unsafe or unsound conduct during the operation of the business
“Section 27 of the Securities Act empowers the Commission to suspend the licence of a securities Exchange where the licensed person contravenes the Securities Act or rules and regulations made in accordance with it,” the gazette notice said.
“That as a result of the suspension of their securities exchange licences, neither Panex nor BaDEX are authorised to conduct securities business or to engage in securities transactions and that the suspension does not affect the validity of a securities transaction made before the date of the publication of this suspension notice.”
The Kenya Capital Markets Act provides that the authority shall, in determining if a person is suitable for the grant of a licence consider among others the status of any other licence or approval granted to the person by any financial sector regulator, ability of the person to carry on the regulated activity competently, honestly and fairly and the reputation, character, financial integrity and reliability.
According to the Act, the authority is also required to take into account whether the person has contravened the provision of any law, in Kenya or elsewhere, designed for the protection of members of the public against financial loss due to dishonesty, incompetence or malpractice by persons engaged in transacting with marketable securities.
CMA says it granted CMX a six-month temporary approval effective July for the dealer to carry out a pilot study, pending completion of due diligence and fulfilment of three key conditions -- approval and vetting of directors, procurement of the services of a clearing bank and getting the systems ready.
“For them, I believe it was for the initial six months, but it was on certain conditions, and the conditions were that you have to get your systems clear, you have to get your players assessed and approved and that you must have financial services providers like the banks,” Mr Shamiah said.
“They (CMX) are in the process of now finalising their processes, systems and getting their players ready for consideration by the regulator upon which they will start testing but at the same time the due diligence issues are on.”
Mr Maaga did not respond to our request for comment on this matter. Our calls and text messages to his cellphone went unanswered.
Zambia Securities and Exchange Commission CEO Philip Chitalu had not responded to our emailed questions by press time.
The CMA board is expected to grant Mr Maaga a hearing and make a determination based on the evidence available, though the authority says a case against an individual director cannot deny the company a licence if it meets all the regulatory requirements.
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