Cheserem must give CMA strength

Following Micah Cheserem’s February 20 appointment to chair the Capital Markets Authority (CMA), we were the first to welcome the move. The basis for our optimism was his record as Central Bank of Kenya Governor, during which he whipped commercial banks into submission, reminding them that their core business was lending to the public, not getting rich off Government paper.

We also challenged Deputy Prime Minister and Minister for Finance, Uhuru Kenyatta, to carry out radical surgery of the capital markets, and restore investor confidence in them.

Only a complete overhaul of the management and a reconstitution of the boards of the CMA, Nairobi Stock Exchange (NSE) and the Central Depository and Settlement Corporation would be acceptable, we said.

Since then, there have been signs that Cheserem’s hand is beginning to be felt, albeit a bit too slowly, in the capital markets.

He is in danger of becoming a paper tiger, whose growl is more fierce than its bite.

While the main NSE 20-share Index has shown a gradual improvement, this has still been characterised by price swings and low volumes, showing that most investors still view the stock market with suspicion and mistrust. A decision to give what amounts to temporary licences to three market intermediaries — Suntra Investment Bank, Reliable Securities and Ngenye Kariuki — indicates that the CMA is alive to matters regarding the three’s compliance levels that are, as yet, not in the public domain.

We hope that these are not too grave, because in the recent past the regulator has been guilty of masking misdeeds by market players, leading to the loss of billions in investor funds.

However, the mere fact that the licensing of the intermediaries has this time been done under the glare of intense media spotlight indicates a greater willingness by CMA to dispel doubts about the exercise.

But we reiterate that Cheserem must be vigilant and not allow this to develop into another of the famous cosmetic exercises that the regulator was famous for in the past. That attitude led to the collapse of Nyaga Stockbrokers last year, and Francis Thuo before it, and is also behind the woes of several market intermediaries, now wallowing in cash flow problems.

One newspaper waxed lyrical about the changes to the NSE Board last week, saying that they signaled the weakening hand of a group of powerful stockbrokers that have controlled the market for most of its modern life.

Better policing

We are a little more pessimistic, given the fact that at least one of the top board members has links to one of the biggest investment group in the region, indicating that theirs may very well be just a strategic retreat.

Even worse, one of the members of the Capital Markets Tribunal is among the top 10 shareholders of the same investment group, raising questions about its ability to be impartial in matters concerning companies in which the firm holds substantial stock.

As we have pointed out before, what this market needs is not more laws, but simply better policing and an injection of experts with diverse skills, who understand the market operations.

Investors are still not happy: They feel that the regulator is moving too slowly, especially with regard to the Safaricom Initial Public Offering (IPO), where an audit yet to be released indicates collusion between several market intermediaries that cost investors billions of shillings.

There is a loophole in the regulations that allow investment banks to buy as many shares as they please using nominee accounts. It was the manipulation of those loopholes that led to the theft of millions from investors in the Safaricom IPO. We want to see this punished.

One of the biggest failures of CMA in the past was that it allowed many of its reformist efforts to be emasculated by rogue market players, and some in its board. That must not happen any more. The incestuous relationship between it and market players must be cut completely, so that it can regain its rightful place as an independent arbiter.