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Demutualisation: Brokers seek compensation from Treasury

BUSINESS
By By Jackson Okoth | August 31st 2012

By Jackson Okoth

The Stockbroking and investment bank fraternity are planning to write a protest note to the Capital Markets Authority (CMA), seeking compensation for what it describes as forceful acquisition of part of the bourse by Government.

In a gazette notice dated August 10, the CMA said that the number of shares to be held by the Government and the regulator’s Investor Compensation Fund be at least 20 per cent of the Nairobi Securities Exchange (NSE) total shareholding.

However, stockbrokers maintain that this position negates an earlier agreement between them, CMA and Treasury.  At present, the NSE is owned 100 per cent by the 22 market participants, including Shah Munge and Francis Thuo.

It had been agreed that in a new demutualised exchange, the 20 active market participants be allocated 80 per cent of the shares, while the Treasury and Investor Compensation Fund get 20 per cent.
EXCLUSION
Subsequently, it emerged that both Francis Thuo and Shah Munge were entitled to an equal share each to the other participants of four per cent.

The members of the Exchange reallocated the shareholding in the demutualised Exchange so that each of the 22 members got four per cent, whereas 12 per cent was reserved for the Government and the compensation fund. This was approved at an extra ordinary meeting held on the March 15, last year.

“No shares have been allotted to the Government or investor compensation fund as yet, because discussions have been going on over these allocations,” said Willie Njoroge- Chief Executive Kenya Association of Stockbrokers and Investment Banks. The price of one trading seat at the exchange is estimated at Sh256 million. This was what Renaissance Capital paid for the slot that was left vacant when Francis Thuo and partners went broke and shut down their business at the bourse.

With the bourse having 22 seats, the NSE is estimated to be worth Sh5.6 billion, meaning that Government must compensate brokers to the tune of Sh1.12 billion for it to acquire 20 per cent of the exchange.

“There is need for an Act of Parliament to enable demutualisation to take place and not mere regulations by the Capital Markets Authority,” said a highly placed source in the stockbroking business.

While the collapsed stockbrokerage firms – Shah Munge and Francis Thuo – had been excluded from the initial sharing out of the NSE cake, their inclusion has now complicated matters.
An officer at CMA declined to comment on the matters surrounding the NSE demutualisation process stating that all information surrounding it were already in the public domain.

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