In the derivative financial markets, one will encounter various contracts such as the forwards, futures, options, and swaps traded through platforms like securities exchange licensed to trade derivative contracts. CMA is required to be provided with these contracts for approval purposes.
Anyone interested in establishing a derivative exchange must ensure that a license is obtained from CMA. Considering that a derivative exchange will be self-regulating, the compliance measures are immense. Further, a person interested in operating as a derivative broker will require securing a CMA license.
On financial matters, some of the requirements are that the applicant must have a paid-up capital of Kenya Shillings One Billion and have a minimum of Kenya Shillings One Hundred Million in the settlement guarantee fund. In certain instances, where an applicant is a natural person, the natural person will be required to comply with the regulations on all aspects within a period of five years.
In certain instances, CMA may offer provisional approval for an entity to operate a derivatives exchange on pre-conditions that certain requirements, which the CMA is convinced the applicant is capable of complying within a specified period – while the provisional license will be for a period of six months, CMA may extend it for a period not exceeding three months.
CMA may revoke a license to a derivative exchange because it fails to meet certain eligibility requirements, ceases to operate a derivatives exchange, wound up, fails to comply with the regulatory requirements, fails to comply with CMA’s directions, fails to provide the required information, providing false or misleading information, conducting its operations in a manner that causes the risk to the public, or requests CMA to revoke its license.
The shareholding structures for a derivative exchange require that a Kenyan entity hold at least fifteen percent of the paid-up share capital. No one will have more than twenty-five percent of the issued share capital or voting rights of a derivatives exchange. Further, to acquire more than four percent of equity shares, one will need CMA’s certification.
The derivative exchanges will rely on a Clearing House, which may manage as a department, wholly-owned subsidiary, an associate of the derivative exchange, or a third-party contracted company. The Clearing House will be required to adhere to the provisions of the regulations.