Regulator warns brokers against luring investors into NSE IPO

A dealer monitors trading online. Investors can now own part of the exchange in an ongoing IPO.

Kenya: The Capital Markets Authority (CMA) has put some market intermediaries on notice for exerting undue influence on investors seeking to buy shares in the Nairobi Securities Exchange (NSE) public offerings.

The regulator accuses some stockbrokers and investment banks of issuing advisories to the public in respect to NSE’s Initial Public Offering (IPO) without making requisite disclosures to their interested parties to the issue and not stating their status as trading participants at the NSE. The market intermediaries are the majority owners of the exchange.

In a circular to all market intermediaries, acting Chief Executive Paul Muthaura said such behaviour is illegal and subject to disciplinary action.

SELF-LISTING

Mr Muthaura said such non-disclosures are tantamount to conflict of interest between market intermediaries and the clients.

In a circular dated August 6, 2014, Muthaura noted that failure by the market intermediaries to disclose material conflict of interest as well as give sufficient information to a client would lead to the client not being able to make informed decisions about his/her potential investment.

“This failure to disclose is contrary to the requirements of Section 33(1) (h) of the Capital Markets (Licensing requirements)(General Regulations 2002 as read with Regulation7 (2) and 12(3) of the Capital Markets (Conduct of business)(Market intermediaries) Regulations 2011,” he said.

“The Authority shall proceed to take appropriate regulatory or administrative action against any person  who fails to comply with these Practice Directives.”

Muthaura said such non-disclosures would also have material effect on market activity and the prices of securities.

NSE is offloading a total of 66 million shares to the public through an IPO, which opened on July 24.

Of this, a total of 63.5 million shares are available for grabs by the public, while 2.5 million shares have been reserved for the employees of the NSE.

The IPO priced at Sh9.50 per share is expected to set the stage for NSE’s eventual self-listing in September 9.

The gross proceeds of the offer estimated at Sh627 million will be used by the 60-year-old exchange to settle an outstanding mortgage loan of Sh160 million.

The funds will also be invested in new infrastructure to support NSE’s various expansion initiatives and to provide seed capital towards the settlement guarantee fund for futures.

The offer closes on August 12.

Demutualisation and self-listing of the NSE form part of the Government’s policies to enhance governance standards and facilitate access to our markets by a wider community of investors.

After the self-listing, the NSE will join the Johannesburg Stock Exchange (JSE) as the second Exchange in Africa to demutualise and list itself.