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Kenya: Stock Market Has Its Fair Share of Shortcomings
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The Nation (Nairobi)
28 March 2008
Posted to the web 28 March 2008
Mutuma Mathiu
Nairobi
The stock market is one of the most important drivers of economic growth. It enables companies to raise the money they need to expand businesses. It also creates wealth for those who save.
The Nairobi Stock Exchange has done a fairly good job of supporting the Kenyan economy and there are many brokers and other capital market institutions which have continued to contribute to the general welfare.
But the capital market is sick. It is poorly regulated, the level of corporate governance is unacceptably low in some brokerages and there is a real danger that some Kenyans could lose their money in there. There is a wonderful opportunity now to thoroughly investigate this sector and reform it for its own good and for the good of the economy as a whole.
Many perhaps had hoped that the fraternity of brokers, under whose control falls a large part of the capital market, would govern themselves because it is in their business interest for the stock market to have a good reputation.
Rotten precedent
The rotten precedent set after the collapse of Francis Thuo & Partners stockbrokers last year is evidence that whereas those in the share business are quick to defend their reputation - by withholding information and carrying on the fiction that all is well - better, more transparent regulation is urgent and imperative. The report of the investigation into that sorry affair was never made public. It is therefore not clear whether any new regulations were put in place to prevent brokers from monkeying around with their client's money.
The NSE resolved the issue by auctioning the fallen broker's seat (and it did not even go to the highest bidder) and in that way covered the losses incurred by the broker.
The capital markets fraternity should be thoroughly ashamed at the fact that this morning there will be two queues at the Nairobi Stock Exchange: One for those waiting to hear whether their shares were fraudulently traded and another for those investing in Safaricom.
Many will have many questions in their minds. When will a detailed and comprehensive report of the investigation into the Nyaga Stockbrokers be made public? It is surprising that weeks after this scandal became public, putting the investments of more than 100,000 people at risk, the NSE and CMA have not found it fit to explain the extent of the loss.
It is now almost evident that Nyaga was trading in its own name, yet it was not a licensed investment bank. If an entity can trade illegally on the floor, then it means that the surveillance systems in the stock market are deficient.
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Rogue brokers
Are there more people trading illegally? Is the public's investment in the stock market 100 per cent safe from rogue brokers? There is no doubt that crimes have been committed.
At any rate, the capital market must be reformed from top to bottom if it is to play its important role in the economy.
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