NSE should decide own fees after change of ownership, say experts

By James Anyanzwa

Nairobi, Kenya: A fully demutualised Nairobi Securities Exchange (NSE) will be given the freedom to fix its own fees and commissions.

This means the bourse will not require any approval from the Capital Markets Authority (CMA) to determine the amount it charges investors on various transactions.

The latest is part of the recommendations by a consortium of financial experts seeking to promote the growth of the securities market and ensure reasonable earnings to the market intermediaries.

The experts, however, warned that there should be a strong competition authority to ensure that NSE doesn’t raise its fees unfairly.

According to the experts procured to map out a growth strategy for the 60-year-old exchange, centrally determined fees do not give an organisation the ability to manage its own business effectively.

“Once the NSE has fully demutualised it should be given the authority to set its own fees so that it can obtain and allocate the resources it needs and can rapidly respond to market developments and opportunities,” they said.

According to their 10-year (2014-2023) Capital Markets Master Plan the NSE’s fee structure should be transparent to ensure that the participants —both existing and those contemplating joining—know exactly the complete structure of participation. According to the plan, market fees should be set at appropriate levels to build volumes.  It says that in the absence of competition to the NSE there could be a concern that the bourse would raise fees unfairly.

“To prevent this, there clearly needs to be a strong Competition Authority who would step in the event of complaints about unreasonable fees.  In addition, this freedom can only be given where there is the potential for effective competition,” the experts said.

Necessary criteria

 “Therefore, it is important that new suppliers of exchange and clearing infrastructure be permitted to operate in Kenya (assuming they meet the necessary criteria). CMA should ensure that the approval process for such new infrastructures is straightforward and efficient. “

The plan prepared by a steering committee consisting of financial sector regulators, industry associations, academics and other industry experts seek to support the creation of Kenya as an international financial services centre.

Market intermediaries have frequently raised concerns over what they earn on equity and bond transactions, noting that the local capital markets is unattractive due to the existing transaction costs.

But the market regulator, CMA argues that low transaction costs are key to the growth of capital markets in the country.

 The current level of transaction fees on the NSE has been blamed for the fading revenue reserves of several stockbrokers, investment bankers and fund managers.

Last year, CMA procured a consultant to carry out a comprehensive review of fees, commissions and levies paid by investors and issuers, which have partly been blamed for the industry’s lackluster performance. As part of the new structure for various fees and commissions charged on the NSE, CMA recommended that investors be exempted from contributing towards the operations of the Investor Compensation Fund (ICF).

The market regulator also recommended stockbrokers and investment bankers to contribute towards the ICF at the rate of 0.15 per cent of the value of the transaction.

 According to the new proposals, the Transaction Levy for (Central Depository and Settlement Corporation) CDSC was increased to 0.08 per cent from 0.06 per cent while Transaction Levy (NSE and CMA) and Settlement Guarantee Fund remained unchanged at 0.12 per cent and 0.02 per cent.

Other charges

Other charges in the equity Market such as the market development levy (0.01 per cent), CMA’s approval fee for listing by introduction (0.25 per cent) and CMA’s approval fees for capitalisation or rights issue (0.25 per cent), remained unchanged.

Also remaining unchanged are CMA’s approval fees for the issue of securities to the public (0.15 per cent) and CMA”s approval fees for commercial paper (0.10 per cent).