Legal Notice No. 88

10th August, 2012

LEGAL NOTICE NO. 88

THE CAPITAL MARKETS ACT

(Cap. 485A)

IN EXERCISE of the powers conferred by section 12 (1) of theCapital Markets Act, the Capital Markets Authority makes thefollowing Regulations:—

THE CAPITAL MARKETS (LICENSING REQUIREMENTS)(GENERAL) (AMENDMENT) REGULATIONS, 2012

1. These Regulations may be cited as the Capital Markets(Licensing Requirements) (General) (Amendments) Regulations, 2012.

2. Regulation (2) of the Capital Markets (LicensingRequirements) (General) Regulations, 2002 (hereinafter referred to asthe principal Regulations) is amended by inserting the followingnew definition in proper alphabetical sequence-

“demutualization” means the separation of the ownership of anexchange from the right to trade on such exchange ;

“demutualized exchange” means a securities exchange in whichownership and rights to trade are separate;

“rights to trade” means the rights of access to and the use oftrading related facilities provided and maintained by a securitiesexchange which a securities exchange may grant a licensee of theAuthority, subject to the rules of the securities exchange on admissionof trading participants.”

3. Regulation 3 (2) of the principal Regulations is amended bydeleting sub paragraph (a) and substituting therefor the following newsub paragraph—

(a) the rules, memorandum and articles of association of theapplicant which shall be in a form that is satisfactory to theAuthority and restricts the applicant to the business ofoperating a securities exchange and services incidentalthereto.

4. Regulation 4 (1) of the principal Regulations is amended—

(a) by deleting the word “members” appearing immediatelybefore the words “securities by its” in subparagraph (b) andsubstituting therefor the words “trading participants”;

(b) by deleting the words “stock brokers and dealers” appearingimmediately before the word “financial” in subparagraph (f)and substituting therefor the words “trading participants”and by deleting the word “members” appearing immediatelybefore the words “on such” and substituting therefor thewords “trading participants”;

(h) the conduct of securities trading by trading participantsand the manner in which information relating totransactions is to be maintained and reported to othertrading participants and customers of the securitiesexchange ;

(d) by deleting the word “members” appearing immediatelybefore the words “accounts of a” in subparagraph (i) andsubstituting therefor the words “trading participants”;

(e) by deleting the word “members” appearing immediatelybefore the words “Authority by” in subparagraph (j) andsubstituting therefor the words “trading participants”;

(f) by deleting subparagraph (m) and substituting therefor thefollowing new subparagraph—

(m) trading rights on a securities exchange;

(g) by deleting subparagraph (n) and substituting therefor thefollowing new subparagraph—

(n) admission of trading participants to the securitiesexchange, registration of representatives of tradingparticipants with the securities exchange and to providefor different categories of trading participants, whereappropriate ,and the rights and obligations attaching toeach category;

(h) by deleting subparagraph (o) and substituting therefor thefollowing new subparagraph—

(o) conduct of trading participants, their representatives,authorized clerks and dealers; and

(i) by deleting subparagraph (p) and substituting therefor thefollowing new subparagraph—

(p) responsibility of trading participants for the actions oftheir employees and agents in their dealings with thepublic.

5. Regulation 5 of the principal Regulations is amended—

(a) by deleting paragraph (1) and substituting therefor thefollowing new paragraph—

(1) Trading participants of a securities exchange shall belicensees of the Authority with rights to trade at an approvedsecurities exchange;

(b) by inserting the following new paragraph immediately afterparagraph (1)—

(1A) The Authority may prescribe limits on the ownership ofa securities exchange by its trading participants.

(2) A securities exchange may, in accordance with the proceduresprescribed in its rules, admit as a trading participant, any person whohas been licensed by the Authority to exercise rights to trade -

(a) if that person satisfies any admission requirements of thesecurities exchange; and

(b) on payment of admission fee approved by the Authorityunder section 29(2) of the Act,

and accord that person the applicable rights to the relevant category ofadmission:

Provided that, a securities exchange may asses an application foradmission by a person seeking a licence from the Authority and issue aconfirmation that that person shall be admitted upon securing a licensefrom the Authority;

(3) A trading participant of a securities exchange or a director ora shareholder of a trading participant shall not be a director or holdbeneficial interest either directly or indirectly in more than one trading

participant of a securities exchange unless the trading participants hasbeen exempted by the Authority on the basis of evidence of adequateinternal controls to address conflict of interest.; and

(d) by deleting the word “member” appearing immediately afterthe word “listed” in subparagraph (4) and substitutingtherefor the words “trading participant”

6. Regulation 6 of the principal Regulations is amended—

(a) in paragraph (1) by deleting the word “members” andsubstituting therefor the words “trading participants”;

(b) in paragraph (3) by—

(i) deleting subparagraph (b) and substituting therefor thefollowing new subparagraph—

(b) a board of directors comprising of the chiefexecutive of the securities exchange and at least one

third independent and non-executive directors;

(ii) deleting subparagraph (c) and substituting therefor thefollowing new subparagraph—

represent the trading participants;

(iii) deleting subparagraph (d) and substituting therefor thefollowing new subparagraph—

(d) the independent and non-executive directorsappointed under subparagraph (b) shall be personswho have knowledge and experience ininvestments, public service and corporategovernance and shall represent the interests ofinvestors and the public interest:

Provided that prior to making any such appointmentthe securities exchange shall submit the names of thepersons proposed to be appointed as directors to theAuthority for confirmation that the Authority has noobjection to the proposed appointments;”

(iv) deleting subparagraph (e) and substituting therefor thefollowing new subparagraph—

(e) two members of the board shall be elected by theshareholders of the securities exchange fromnominees of companies listed on the securitiesexchange to represent the listed companies; and

(4) Subject to paragraph (3) (c), (d) and (e), the other personsappointed to the board of directors shall be elected by the shareholdersof the exchange in accordance with the Companies Act.

(d) by deleting subparagraph (5).

7. Regulation 9 of the principal Regulations is amended—

(a) in paragraph (1)(a), by deleting the words “members” andsubstituting therefor the words “trading participants”;

(b) in paragraph (1)(b), by deleting the words “members” andsubstituting therefor the words “trading participants”;

(2) A securities exchange shall implement a system of selfregulation with respect to its trading participants and shall ensure theday to day management of trading, settlement, delivery and all otheractivities of its trading participants are in accordance with—

(a) the rules of the securities exchange approved by theAuthority; and

(b) laws, regulations and guidelines relating to securities issuedby the Authority.;

(d) by inserting the following new paragraphs immediately afterparagraph (2)—

(3) The rules of a securities exchange shall, whereapplicable, support the self-regulatory functions of thesecurities exchange and in particular shall be designed to—

(a) promote investor protection;

(b) promote fair treatment of its trading participantsand any person who applies for admission as a

trading participant;

(c) exclude a person who is not fit and proper frombeing its trading participant or being appointedas its chief executive, director or officer;

(d) promote proper regulation and supervision of itstrading participants;

(e) promote appropriate standards of conduct of itstrading participants;

(f) manage any conflict of interest which may arisebetween its interest and the interest of investors

and the general public;

(g) ensure that its trading participants and officersduly comply with the securities laws, regulations

and guidelines issued by the Authority andwhere relevant, the rules of the securitiesexchange, or approved central depository;

(h) require trading participants to report in a timelymanner any breaches of applicable rules;

(i) prevent the use of any information by its tradingparticipants or officers which may result in such

trading participants or officer making an unfairgain;

expel, suspend, discipline or sanction a tradingparticipant if a trading participant contravenessecurities laws, regulations and guidelines issuedby the Authority or where relevant, the rules of the securities exchange, or an approved centraldepository;

(j) require a trading participant to report any action,restriction or limitation imposed on itsoperations by another securities exchange,central depository or the Authority; and

(k) allow an aggrieved trading participant to appealagainst any decision of the securities exchange acting in its capacity as a recognized self-regulatoryorganization.”

(4) An applicant shall, as a condition for approval tooperate a securities exchange—

(a) exercise self regulatory responsibility over itstrading participants; and

(b) put in place independent management of andbudgetary structures for the commercial andregulatory functions of the securities exchange.”

8. Regulation 10 of the principal Regulations is amended—

(a) in paragraph (a) by deleting subparagraph (i) andsubstituting therefor the following new subparagraph—

(i) its shareholders; and

(b) in paragraph (b) by—

(i) deleting the words “full and associate” appearingimmediately before the words “register of” andsubstituting therefor the words “trading participant ”; and

(ii) deleting the word “members” wherever it occurs andsubstituting therefor the words “trading participants”;

(c) by deleting the words “full and associate members” inparagraph (h) and substituting therefor the words “tradingparticipants”;

(d) by deleting paragraph (j) and substituting therefor thefollowing new paragraph—

“(j) records containing any trading limits, marginrequirements or related financial and operational limitsit imposes on its trading participants on a monthlybasis.”

9. The principal Regulations are amended by deleting Regulation11.

10. Regulation 12 of the principal Regulations is amended-

(a) by deleting subparagraph (4)(d) and substituting therefor thefollowing new sub paragraph—

(4) (d) admission, suspension or expulsion of tradingparticipants.;

(b) by deleting the word “members” appearing immediatelyafter the word “against” in subparagraph (4)(e) andsubstituting therefor the words “trading participants.”

11. Regulation 15 of the principal Regulations is amended—

(a) in paragraph (1) sub paragraph (d) by deleting—

(i) the word “member” appearing immediately after thewords “admitted as a” in item (ix) and substitutingtherefor the words “trading participant”; and

(ii) the word “member” appearing immediately after thewords “one” in item (xv) and substituting therefor thewords “trading participant”;

(b) in paragraph (3) by deleting sub paragraph (b) andsubstituting therefor the following new sub paragraph—

“(b) provide a guarantee or a security to a securitiesexchange or a central depository in a form acceptableor approved by the Authority in respect of which it is atrading participant or has applied for admission as atrading participant;

(d) by deleting paragraph (10) and substituting therefor thefollowing new paragraph—

(10) An application for a stockbroker or a dealerlicense shall be accompanied by a letter from the securitiesexchange stating that the applicant meets all the relevantrequirements of that securities exchange and that thesecurities exchange would admit the applicant if licensed bythe Authority.

12. Regulation 16 of the principal Regulations is amended bydeleting paragraph (1) and substituting therefor the following newparagraph—

(1) The level of shareholders’ funds (paid up share capitaland reserves) for stock brokers shall not fall below fifty millionshillings at any time during the license period.

13. Regulation 19 of the principal Regulations is amended—

(a) in paragraph (1)(i) by—

(i) deleting the words “full members or associatemembers” appearing immediately after the word “with”

and substituting therefor the words “tradingparticipants”; and

(ii) deleting the word “member” appearing immediatelyafter the word “other” and substituting therefor thewords “trading participant”; and

(b) by deleting the word “member” appearing immediately afterthe words “is a” appearing in paragraph (2) and substitutingtherefor the words “trading participant”.

14. Regulation 21 of the principal Regulations is amended inparagraph (1) by deleting the word “members” and substitutingtherefor the words “trading participants”.

15. Regulation 22 of the principal Regulations is amended inparagraph (1) by deleting the word “members” appearing insubparagraph (c) and substituting therefor the words “tradingparticipants”.

16. Regulation 26 of the principal Regulations is amended inparagraph (2) by deleting the word “members” and substitutingtherefor the words “trading participants”.

17. Regulation 27 of the principal Regulations is amended bydeleting the word “members” appearing immediately after the words“they are” and substituting therefor the words “trading participants”.

18. Regulation 39 of the principal Regulations is amended byinserting the following new paragraph immediately after paragraph (2)-

(3) An Investment Bank which intends to be admitted as atrading participant at a securities exchange shall submit a letter fromthe securities exchange which the applicant is seeking admission as atrading participant confirming the admission of that applicant uponsecuring a license from the Authority.

19. The principal Regulations are amended by deleting regulation41 and substituting therefor the following new regulation—

Admission to a securitiesexchange.

41. (1) A person licensed by the Authority asan investment bank shall be eligible to apply foradmission as a trading participant with a securitiesexchange:

Provided that the licensed investment bankcomplies with the eligibility requirements of theadmitting securities exchange.

20. The principal Regulations are amended by deleting regulation42.

21. Regulation 44 of the principal Regulations is amended inparagraph (1) by inserting the words “and in addition, shareholders’funds (paid up share capital and Reserves) shall at no time fall belowtwo hundred and fifty million shillings” immediately after the words“license period.”

22. Regulation 45 of the principal Regulations is amended byinserting the following new paragraph immediately after paragraph(2)—

(3) An authorized securities dealer who intends to beadmitted as a trading participant at a securities exchange shallsubmit a letter from the securities exchange, which the applicantis seeking admission to as a trading participant, confirming thatapplicant shall be admitted into the securities exchange uponsecuring a license from the Authority.

23. Regulation 48 of the principal Regulations is amended bydeleting paragraph (2) and substituting therefor the following newparagraph—

(2) A person licensed by the Authority as an authorized securitiesdealer shall be eligible to apply to be admitted as a trading participantwith a securities exchange:

Provided that the authorized securities dealer meets the eligibilityrequirements of the admitting securities exchange.

24. Regulation 50 of the principal Regulations is amended bydeleting the words “an associate member”appearing in paragraph (1)and substituting therefor the words “trading participants”.

25. Regulation 53 of the principal Regulations is amended—in paragraph (1) by deleting the words “full members orassociate members” and substituting therefor the words “tradingparticipants”; and

(a) in paragraph (2) by—

(i) deleting the word “full members or associate members”appearing immediately after the words “directors of a”and substituting therefor the words “tradingparticipants”; and

(ii) inserting the words “carry on” immediately before thewords “trading activities.”

27. Regulation 64 of the principal Regulations is amended inparagraph (1) by deleting the word “full member” appearing before thewords “is a” and substituting therefor the words “trading participant”.

28. Regulation 69 of the principal Regulations is amended—

(a) in paragraph (a) by deleting the word “member” appearingimmediately before the words “is a” and substitutingtherefor the words “trading participant”; and

(b) in paragraph (b) by deleting the word “member” appearingimmediately before the words “is a” and substitutingtherefor the words “trading participant”.

29. The First Schedule of the principal Regulations is amended-

(a) in item 17(2)—

(i) by deleting the word “membership” and substitutingtherefor the words “admission as a trading participant”;and

(ii) by deleting the word “or membership of”; and

(b) in item 22 by deleting the words “membership (FullMember/Associate Member delete where applicable)” andsubstituting therefor the word “admission as a tradingparticipant”.

30. The Fifth Schedule of the principal Regulations is amendedin paragraph 2 by—

(a) inserting the words “AND CENTRAL DEPOSITORYGURANTEE FUND FEE” immediately after the words“COMPENSATION FUND FEE” appearing in the fourthcolumn;

(b) deleting the word “NSE” appearing in the second row of thesixth column and substituting therefor the words “CDSCGUARANTEE FUND”; and

(c) inserting the words “INVESTOR COMPENSATIONFUND” immediately after the word “CMA” in the secondrow of the seventh column.

Made on the 27th June, 2012.

STELLA KILONZO,

Chief Executive,

Capital Markets Authority.

KUNG’U GATABAKI,

Chairman,

Capital Markets Authority.