Kenya’s Capital Market Authority proposes new regulations for commodity exchange

KENYA – Capital Markets Authority of Kenya is proposing new regulations that will guide the planned Commodities Exchange.

According to the draft regulations, companies looking to expand their activities to the commodities exchange will have to register as separate entities.

The draft Capital Markets (Commodity Markets) Regulations, 2019, trade regulation will also apply to Nairobi Stock Exchange which was recently granted approval to launch and operate a derivatives market.

“A securities exchange or derivatives exchange intending to operate a commodities exchange shall set up a separate legal entity to conduct the business of commodity exchange,” part of the draft regulation reads.

The regulations provide for the licensing of commodity exchanges, commodity brokers and approval of clearing houses.

The new regulations have also set high propriety risks requiring companies to have to liquidity valued at 50 per cent of total operating costs of the commodity exchange for the next one-year period.

“A commodity exchange shall maintain, at all times, liquid net worth amounts of a type acceptable to the Authority, which shall be adequate in relation to the nature, size and complexity of the business of that commodity exchange to ensure that there are no significant risks that liabilities may not be met as they fall due.”

“A commodity exchange shall, on a quarterly basis within 30 days after the end of every quarter, submit to the Authority an audited liquid net worth certificate from an auditor,” the new regulations state.

The companies to the exchange will also be limited to those with shareholders, a report by Capital News explains

“In considering an application for a licence to operate a commodity exchange an applicant shall be required to be a company limited by shares and be demutualised,” it added.

The companies are expected to, deliver, manage various commodities traded, give and take-up transactions, position transfers, transaction separations, open or close transaction designations and adjustments and average pricing.

However, CMA head of corporate communications Anthony Mwangi noted that “these are just drafts still going through public participation. Once we close after 30 days, we will look at the comments and incorporated to law.”

It comes ahead of the awaited Kenya National Multi Commodities Exchange (Komex) expected to be ready by December.

Globally, most commodity markets traded include wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil and metals.

Trading in a commodities exchange may include futures contract offered under the derivatives market to protect sellers especially farmers from price fluctuations.

“The development of a regulatory framework for commodity exchanges will augment the government’s efforts on enhancing food security and making the commodities market competitive, improving efficiencies in the value chain and meeting international standards,” CMA added.

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