EDITORIAL: CMA must plug loopholes in policing of securities market

CMA chief executive Paul Muthaura. FILE PHOTO | NMG 

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The Capital Markets Authority (CMA) has been giving confusing signals on the issue of suspension of trading in listed companies that are subject of takeover bids.

The basis of taking the decisions on suspensions remains unclear and there is no telling what it will do once a potential merger and acquisition deal involving a company listed on the Nairobi Securities Exchange (NSE) is announced.

In the latest case, where Express Kenya has received a buyout bid, the CMA has just lifted the suspension imposed last year but it is not very clear why similar treatment has not been applied to companies that have been in a similar situation in the past. It is an indication of the lack of transparency and predictability that characterises the suspensions of trading of listed companies.

To muddle matters further, when Seaboard Corporation of the US recently expressed interest and put out a bid to buy Unga Group

, trading of the firm’s shares was suspended before being lifted a few days later under mysterious circumstances.

For Unga, it was unclear who even ordered the suspension in the first place because neither the CMA nor the NSE expressly accepted responsibility for it. Only after the event, did the CMA blame the NSE for the freeze.

READ: CMA on the spot again as Express Kenya ban lifted

The regulator needs to take account of what its decisions imply for various stakeholders, especially investors. Investment in a quoted company is often driven by the expectation that one can sell their shares any time if they so wish, but a suspension means that they cannot do so.

This interferes with the liquidity associated with listing a firm on a trading platform like the NSE.

If you consider the case of a firm such as Safaricom

with a value in excess of Sh1 trillion and a huge number of investors, the gravity of the problem emerges clearly.

If the telco was to receive an acquisition bid, a decision by the CMA to suspend trading in its shares would have far-reaching ramifications and could deny numerous investors the money they probably would be in need of.

The CMA tends to offer explanations after the event or after questions are raised on the rationale of its actions instead of giving all the required information from the time the announcement of a takeover is made.

This indicates a lacuna of policy and guidelines on the matter. What guides its actions once a takeover is announced? It is high time that the regulator tackled this gap in its policing of the securities markets.