Business Daily (Nairobi)
Washington Gikunju
28 April 2008
Nairobi — Six stockbrokers have less than a month to rescue their businesses from closure by the Capital Markets Authority after they failed to satisfy basic requirements for licence renewal.
The six who are living on borrowed time - aptly captured in technical jargon as extended licences - are contained in the latest edition of the Kenya Gazette. Bob Mathews Stockbrokers and Ngenye Kariuki and Company join four others that The Business Daily exclusively reported had been placed on the CMA watchlist on March 12.
The others are Discount Securities, Reliable Securities, Crossfield Securities and Solid Investment Securities.
Market share statistics for last year indicate that the six brokers controlled 13.5 per cent of the total equities turnover, equivalent to Sh22 billion of the Sh175 billion traded at the NSE last year.
The regulator has declined to renew the licenses for this year, but has conditionally extended their 2007 permits to May 26 - giving them more time to comply with the authority's licensing conditions.
The Kenya Gazette notice published on Friday also identifies two investment advisors - Franklin Management Consultants and WSD Capital- who failed to meet the authority's licensing requirements and are operating on extended conditional licences.
A conditional licence allows a player to continue operations pending a review of the issues raised by the authority that prevent an outright renewal.
Depending on the outcome of the review, a conditional licence could be set side and a new one given.
However, the authority could also suspend the firm's licence, leading to permanent withdrawal in circumstances of continued violation of rules.
The acting CMA chief executive, Ms Stella Kilonzo, declined to comment on the Kenya Gazette notice, saying a statement would be issued on behalf of the authority by its publicity handlers, Gina Din Corporate Communications. The statement had not been received as we went to press.
Ms Kilonzo had previously said that those running on extended licences had no major problems. Most of the six brokers contacted by the Business Daily said they had sent their responses to the authority and were awaiting the review. They said most of the issues raised were operational.
Common concerns raised in the six cases involve investor complaints touching on certain brokers, some money that was not adding up and overdrawn bank and clearing accounts. The law stipulates that licences issued by the CMA have to be renewed by the end of March every year, and all licensees gazetted by the end of April.
"Most of the concerns raised by CMA were operational in nature and have since been addressed. I am confident that we will get a renewal," said Mr Kevin Bender, the managing director at NIC Capital.
NIC Capital, a subsidiary of NIC Bank, acquired Solid Investments Securities and renamed it NIC Capital Securities earlier in the year.
Mr Bender said the just concluded Safaricom IPO had denied the firm time to put its case before the regulator.
NIC Capital, he said, had injected Sh100 million this month to bring its total paid up capital to Sh130 million.
The CMA requires stockbrokers to have a minimum capitalization level of Sh5 million while investment banks are supposed to have shareholders' funds of at least Sh30 million.
Discount Securities chairman, Mr William Murungu, said the issues raised by CMA were operational and had nothing to do with the firm's capitalization, which he says stood at Sh54.7 million as at the audit date of December 31.
Mr Murungu had last month told the Business Daily that CMA had wanted the firm to increase its capital base after it applied for an upgrade of its brokerage licence to an investment bank.
"Our letter only refers to the application of an investment bank licence. It does not relate to our financial position or operation as a broker," said Mr Murungu. His latest statement appears to contradict this.
Mr Bob Mathews, the owner and managing director of Bob Mathews Stockbrokers, declined to comment, saying he was not aware of the conditional licence that his firm had been given.
"I am not aware of the Kenya Gazette you are talking about," he said.
Ngenye Kariuki and Company's owner and managing director, Mr Ngenye Kariuki, was said to be out of office all day on Friday and could not be reached for comment.
Reliable Securities, owned by Mr Josephat Konzolo, is currently involved in a court battle with Attic Consultants, an architectural company that has brought up winding up proceedings against it after it allegedly failed to honour a debt it owed the architects.
It is not yet clear what the authority requires of the two advisory firms that have also been given conditional licences.
However, among the licensing requirements for investment advisors is to provide evidence of a minimum paid up share capital of not less than Sh2.5 million.
CMA has stepped up its surveillance over stockbrokers following the collapse of a stockbrokerage firm (Francis Thuo and Partners) and the placement of another (Nyaga Stockbrokers) under statutory management in a space of less than 12 months.
Concerns have also been raised that some brokers are living off their clients' money by selling their shares without their authorisation, while others were failing to effect instructions promptly or pay proceeds at the end of five days as is required under NSE regulations.
Several of them are also in arrears in remitting statutory dues to the NSE, CMA and the Central Depository and Settlement Corporation.The regulator is also enjoying additional sanction powers, which came into effect on January 1.
In his 2007-8 budget speech, Finance minister Amos Kimunya said the Government was "conscious of the need to protect the integrity of the stock exchange and to protect the small investors from unscrupulous market players."
President Kibaki also recently joined those calling for the restoration of sanity in the capital markets, by calling on CMA to rein in stockbrokers gambling with investor funds.
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