CMA seeks stakeholder views on key market regulations

You have a month to submit your views on the draft Margin Trading Regulations as well as the amended Guidelines on Financial Resource Requirements for Market Intermediaries, and reviewed Commodity Markets Regulations.

The Capital Markets Authority (CMA) Chief Executive Officer, Wyckliffe Shamiah, says: “The regulatory review is aimed at enhancing responsiveness to changing dynamics, market developments, technological advancements, and emerging stakeholder expectations.”

Shamiah explained that the introduction of Margin Trading is expected to enhance market liquidity by increasing the supply and demand for securities and maintain the stability and integrity of financial markets in line with its mandate.

Capital Markets Authority(CMA) Chief Executive Officer Wyckliffe Shamiah

Margin financing enables investors buy large quantities of securities seen as undervalued or their price has been impacted by negative news or investor sentiments but have potential for recovery. When investors are active on both the demand and supply side, investor sentiments improve, thereby attracting more investors to the stock market.

Margin Trading is a form of securities trading that involves buying securities by borrowing funds (margin loan) from a broker at an interest rate (margin rate). In margin trading, the securities trader only pays a fraction of the actual cost of the trade up-front and pledges the securities bought on margin as collateral for the remaining fraction of the cost. Margin Trading will be undertaken by Trading Participants approved by CMA.

Margin Trading was recommended as one of the measures to improve liquidity in the equity market in the 2015 World Bank Report on Potential Measures for the Improvement of Liquidity in the Kenyan Equity Markets. Other recommendations included Securities Lending and Borrowing (SLB) and Market Making. The Capital Markets (Securities Lending and Borrowing and Short Selling) Regulations were gazetted in 2017 which permit SLB and short selling.

The Authority also approved the rollout of day trading in 2021 to support the enhancement of market liquidity.

Margin Trading has been implemented in other jurisdictions such as the USA, China, Nigeria, Japan, Thailand, and India.

The Financial Resource Requirements for Market Intermediaries have been amended to include new license categories not addressed in the current guidelines. The new license categories include Intermediary Service Platform Providers, Broker-Dealers, Trustees, Custodians and Money Managers.

The Capital Markets (Commodity Markets) Regulations 2020, have been amended to introduce fees to support regulatory oversight over licensed entities in the commodities sector.

CMA has invited stakeholders to submit comments on the draft Guidelines and Regulations by 11 April 2024.

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