Strengthen NSE’s self-regulatory role to boost confidence

A staff monitors trading at the Nairobi Stock Exchange. FILE PHOTO | NMG 

By KENNETH ROTICH

Capital flight in Kenya and Africa at large remains a fundamental policy and academic issue that worries scholars and practitioners alike. The topic raises serious governance and economic bottom line and therefore calls for honest evaluation of the state of capital flows in our local exchange – the
Nairobi Stock Exchange (NSE).

Objective views are ever welcome but not in order to excuse the NSE management and the capital markets regulator of their responsibility and accountability with respect to this matter.

The role of a stock exchange in the economy is now clearer amid bigger trade volumes occasioned by greater awareness campaigns in collaboration with the regulator – Capital Markets Authority (CMA) – and market intermediaries such as investment banks, stockbrokers, fund managers and other financial advisors in the recent past. NSE is regulated by the Capital Markets Authority.

The NSE is one of the most reputed stocks exchanges in Africa owing to its membership to global markets industry associations including World Federation of Exchanges (WFE) and African Securities Exchanges Association (ASEA) and this translates to access to wider markets, in-depth market specific research database, and continuous development of fair, transparent, stable and efficient capital markets.

According to the International Organisation of Securities Commissions (IOSCO), principles of securities regulation are based upon three objectives and principles of securities regulations; investor protection, ensuring fair, transparent and efficient markets and reduction of systemic risks. In principle, the regulatory regime may use appropriately the existence of Self-Regulatory Organisations (SROs) that exercise direct oversight responsibility over their market participants. In 2016, CMA recognised NSE as a SRO in accordance to article 18B(3) of the Capital Markets Act.

Numerous achievements

There are glaring policy and governance issues that are pouring cold water on the numerous achievements so far achieved by the regulator over the years. Reports of suspicious transactions at the stock exchange are becoming part of the news bytes same way runaway graft has eaten our economic yields over time. The latest of such suspicious transactions was the KenolKobil shares.

A thorough survey to audit the bourse to establish possible loopholes point at a weakened internal SRO department and this should not be left unaddressed by the regulator. News about insider trading normally have a negative bearing on the overall performance of any exchange and is the main contributing factor to the capital flight as it serves to erode investor confidence in the happenings within the exchange. NSE’s membership to WFE and ASEA may be subjected to further scrutiny and chances of being stripped of such prestigious memberships are rising higher every day.

The SRO department within the NSE is a critical component to the oversight and market surveillance role of the securities exchange and any attempts to suffocate this role eats into investor confidence and dampen establishment of principles of good practice.

The writer is director, Early Boom.