By John Gachiri
In Summary
- The requirement is contained in a raft of regulations published by CMA to facilitate establishment of a market for trading commodities and currencies.
- A futures market is expected to boost farmers’ earnings by helping to stabilise prices of commodities.
- The exchange is also expected to introduce trading of derivatives and futures currency contracts.
The capital markets regulator has set the
minimum capital requirement for investors seeking to set up a futures
exchange at Sh1 billion.
The requirement is contained in a raft of
regulations published by the Capital Markets Authority (CMA) to
facilitate establishment of a market for trading commodities and
currencies.
“An applicant seeking a licence (for futures
exchange) shall have an authorised ordinary share capital of Sh2 billion
and a minimum paid up share capital of Sh1 billion,” says the draft
rules signed by the CMA acting chief executive Paul Muthaura.
A futures market is expected to boost farmers’
earnings by helping to stabilise prices of commodities which tend to
fall sharply during harvest when there is a supply glut. The exchange is
also expected to introduce trading of derivatives and futures currency
contracts.
The draft Capital Markets (Futures Exchanges)
(Licensing Requirements) Regulations 2013 dated April 30 will be up for
public debate until May 31 to give the regulator recommendations that
should be incorporated in the final draft for tabling in Parliament.
Despite having the most developed financial market
in the region Kenya still lags behind Uganda and Ethiopia which have
more developed commodities exchanges. The Uganda Commodities Exchange
was formed in 1998.
“The most important consideration when selecting a
company to operate the exchange is its experience and expertise to run
this sort of enterprise,” said Coronet Africa country director (Kenya)
Mark Mwaura. “In Uganda, the company running the exchange was selected
on the basis of its experience and not really on its financial profile.”
Coronet Africa is a Uganda-based firm that deals in financial structuring, warehousing and logistics for commodity trading.
Mr Mwaura, however said that physical structures
must first be put in place before the necessary laws are passed. The
Nairobi Securities Exchange (NSE) is, however, already gearing up for a
futures exchange market.
In late February the NSE became an associate member of the Association of Futures Markets,
a Budapest-based organisation that helps in the developing and
establishment of derivatives and related markets globally — indicating
that it may be interested in applying for a licence to run a futures
exchange.
The CMA rules are also proposing that local investors get an ownership slice of the proposed exchange.
“At least 15 per cent of the paid up equity share
capital of a licensed futures exchange shall be held by a Kenyan
entity,” say the draft regulations.
Currency dealers said that the proposed futures market will make it easier to introduce more products which should deepen forex trading.
Currency dealers said that the proposed futures market will make it easier to introduce more products which should deepen forex trading.
“At the moment it is very difficult to price the
currency for four to six years because there is a lot of discrepancies
in the market,” said Bank of Africa’s head of trading Peter Mutuku.
The CMA appointed Assim Jang, a futures expert who
has worked in the UK, the US, and Pakistan, to develop a market for
Kenya, in January.
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