CMA seeks to unlock liquidity with review of licensing rules

CMA Director, Policy and Market Development, Luke Ombara. [David Gichuru, Standard]

The Capital Markets Authority (CMA) anticipates unlocking liquidity in the market with the review of licensing rules for intermediaries even as it insists it will not interfere with the market by setting minimum prices.

CMA said it will be hands-off and let the market take its course, which appears to be a change of mind from earlier reports of plans to set floor prices in partnership with the Nairobi Securities Exchange (NSE).

The shift comes as the authority touted changes in the licensing requirements for intermediaries, which has listed three types of investors: broker-dealers, dealers and investment banks, who will be subjected to strict requirements on investment capital.

CMA Director, Policy and Market Development, Luke Ombara said the review of the licenses will ensure there is a buyer for every seller and a seller for every buyer.

He explained that broker-dealers will act as market makers but can also be allowed to purchase on their own accounts at wholesale.

He said the authority is coming up with specific requirements on investment capital for market makers.

This will ensure if someone wants to sell, they should be liquid enough to either buy or borrow from someone else and supply to the buyer.

“This is a recognised category of intermediaries who will address the concern whereby you find a line of offers but there is no bid on the other side which effectively is among one of the reasons we have had a decline in price being very persistent over time,” he said.

These changes are contained in the Draft Capital Markets Licensing Requirements Regulations 2023.

Mr Ombara said the licences will be issued on the basis of the availability of the intermediary to take up what is being sold or supply what is being bought.

There will also be incentives that would recognise the best market makers in the market.

He was speaking during the release of the capital markets soundness report for Q3 2023. The report showed low activity at 0.66 per cent in Q3 compared to 0.80 per cent in Q2.

Oil prices and geopolitical issues such as the Israel unrest which comes against the backdrop on yet to settled Ukraine-Russia war are among the factors.

“Global macro-economic shocks such as the sudden rise in global oil prices, strengthening of the US Dollar against domestic currencies of frontier markets and search for yield, continue to hinder the resurgence of the capital markets and economic growth,” said the report.

The low activity, as explained by CMA chief executive Wyckliffe Shamiah, is understandable owing to the listed macroeconomic factors coupled with inflation that has since eased.

“When you look at disposal income, what is available for you as savings and perhaps to invest, and looking at other urgent needs you have as a person, what is your reaction? How long can you withstand when you need to settle some of the very urgent needs you have?” he posed.

Mr Shamiah said CMA is careful not to interfere with market forces but looking at how to make the environment more enabling.

In August, raised concern about the low prices of some stocks at the NSE which necessitated a discussion with the NSE.

He said setting floor prices is not a sound move for the market and he maintained that it is better for the prices to be dictated by the market.

“We want to leave the market forces to determine the prices at the Exchange. At some point the market will always correct themselves,” he said.