Kenya’s capital markets regulator, the Capital Markets Authority (CMA), has released draft regulatory guidelines for stock brokers, dealers, and broker-dealers. The regulations, known as the Capital Markets (Licensing Requirements) Regulations, 2023, cater for broker-dealers, which are financial entities engaged in the buying and selling of securities for their own account or on behalf of their customers.
The inclusion of broker-dealers in the regulations is a departure from previous rules that only provided for stockbrokers, investment banks, and dealers. In the United States, the term “broker-dealer” is commonly used to describe stock brokerages because most of them act as both agents and principals.
Under the proposed regulations, a broker-dealer shall be a company limited by shares and eligible to carry out any or all of the following functions: (a) engaging in the business of stockbroker, (b) engaging in the business of a dealer, and (c) promoting or arranging underwriting of issuance of securities.
To qualify as a broker-dealer, the company must have a paid-up share capital of a minimum of KES 70 million and maintain shareholders’ funds of not less than KES 70 million at any time during the license period. The regulations also provide that to be regulated as a stockbroker, the company shall have a minimum paid-up share capital of KES 50 million, while dealers shall have KES 20 million.
Additionally, a broker-dealer must maintain a liquid capital of KES 70 million or eight percent of its total liabilities, whichever is higher.
The proposed regulations are part of CMA’s efforts to strengthen and streamline Kenya’s capital markets by promoting investor confidence and ensuring market integrity. The regulator intends to finalize the guidelines after receiving feedback from stakeholders in the industry.