NSE-Web-Prospectus-2014

Section 6
Development Of Capital Markets
The development of the capital markets in Kenya has a long history
as the NSE is in its 60 th year of existence. The following is a selected
brief summary of that development.
1920s – 1953: Dealing in shares commenced with trading taking
place on a ‘gentleman’s agreement’’ with no physical trading floor.
London Stock Exchange (LSE) officials accepted to recognize the
setting up of the Nairobi Stock Exchange as an overseas stock
exchange (1953).
1954 – 1962: The Nairobi Stock Exchange (NSE) was registered under
the Societies Act (1954) as a voluntary association of stockbrokers
and charged with the responsibility of developing the securities
market and regulating trading activities. Business was transacted
by telephone and prices determined through negotiation. Securities
traded on the NSE during the period mainly included government
debt, loan stocks, preference and common shares.
1963 – 1970: The GOK adopted a new policy with the primary goal
of transferring economic and social control to citizens. By 1968,
the number of listed public sector securities was 66 of which 45%
were for Government of Kenya, 23% Government of Tanzania and
11% Government of Uganda. During this period, the NSE operated
as a regional market in East Africa where a number of the listed
public sector securities included issues by the Governments of
Tanzania and Uganda (the East African Community). However, with
the changing political regimes among East African Community
members, various decisions taken affected the free movement of
capital which ultimately led to the delisting of companies domiciled
in Uganda and Tanzania from the Nairobi Stock Exchange.
1971 – 1990: The GOK made a first attempt to directly monitor
the operations of the securities market in an effort to ensure that
capital raised in the market was not used for investment outside
the country. Tight taxation policies were implemented to reduce
repatriation of funds by foreigners and to raise GOK revenue. In
1971, the GOK established the Capital Issue Committee. When
the EAC finally collapsed in 1975, the Government of Uganda
compulsorily nationalized companies which were either quoted or
subsidiaries of listed companies.
1988: The first privatization through the NSE took place, through
the successful sale of a 20% GOK stake in Kenya Commercial Bank.
The sale left the Government of Kenya and affiliated institutions
retaining 80% ownership of the bank.
In November 1988, The GOK set up a Capital Market Development
Advisory Council whose role was to work out the modalities for
establishing the Capital Markets Authority (CMA). In November
1989: The Capital Markets Act was passed by Parliament.
In January 1990, The CMA was constituted through the Capital
Markets Authority Act (Cap 495A) and inaugurated in March
1990. The main purpose of setting up the CMA was to have a
body specifically charged with the responsibility of promoting and
facilitating the development of an orderly and efficient capital
market in Kenya.
1991: NSE was registered as a private company limited by shares.
Share trading moved from being conducted over a cup of tea, to the
floor based open outcry system.
1993: The CMA increased the initial paid up capital for stockbrokers
from Kshs.100,000 to Kshs.5.0 million while that for investment
advisors was set at Kshs.1.0 million.
1994: With the amendments to the Capital Markets Act, it became
mandatory that a securities exchange approved by the CMA be
a company limited by guarantee. The number of stockbrokers
increased by a further seven.
On February 18, 1994, the NSE 20-Share Index reached a record
high of 5,030 points. The NSE was rated by the International Finance
Corporation (IFC) as the best performing market in the world with
a return of 179% in dollar terms. The NSE also moved to more
spacious premises at the Nation Centre in July 1994, setting up a
computerized delivery and settlement system (DASS).
1995: An additional eight stockbrokers were licensed in June
1995 and with the suspension of one stockbroker, the total
number of stockbrokers was twenty. The CMA established the
Investor Compensation Fund whose purpose was to compensate
investors for financial losses arising from the failure of a licensed
broker or dealer to meet their contractual obligations. To meet its
developmental role, the 1995 amendments to the Capital Markets
Act 995 spelt out regulations providing for foreign investors’
participation in the domestic capital markets.
1996: Privatization of Kenya Airways took place where more
than 110, 000 shareholders acquired a stake in the airline and the
Government of Kenya reduced its stake from 74% to 26%. The
Kenya Airways Privatization team was awarded the World Bank
Award for Excellence for 1996, for being a model success story in
the divestiture of state-owned enterprises.
1997: New rules, regulations and guidelines to govern the issuance
of corporate bonds and commercial paper were issued by the CMA.
With the objective of developing a code of conduct, promoting
professionalism, and establishing examinable courses for its
members as well as facilitate liaison with the CMA and the NSE,
the members of the NSE formed the Association of Kenya Stock
brokers (AKS).
1998: The CMA published new guidelines on the disclosure
standards by listed companies. The disclosure requirements were
meant for both public offerings of securities as well as continued
reporting obligations, among others. On July 17, 1998, Mr. Robert
E. Rubin, the 70th United States Secretary to the Treasury, visited
the trading floor of the Nairobi Stock Exchange.
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