PART II – THE CAPITAL MARKETS AUTHORITY
PART IIA – RECOGNITION OF SELF-REGULATORY ORGANIZATIONS
PART III – PROVISIONS RELATING TO EXCHANGES
19.Approval of securities exchange requiredSubject to this Act, no person shall carry on a business as a securities exchange, commodities exchange or a derivatives exchange or hold himself out as providing or maintaining a securities market or a derivatives market unless he has been approved as a securities exchange, commodities exchange or a derivatives exchange by the Authority in such manner as the Authority may prescribe. 19A.Restriction on use of the words “stock exchange”, “securities exchange” etc.A person shall not use the words “stock exchange”, “securities exchange”, “commodities exchange”, “derivatives exchange” or “futures exchange” in connection with a business except in accordance with an exchange licence granted by the Authority. 20.Application for securities exchange, commodities exchange approval(1)An application for securities exchange, commodities exchange or derivatives exchange approval shall be made to the Authority in the form and manner prescribed by the Authority and shall be accompanied by the prescribed fee.(2)The Authority may, by notice in writing, approve a person as a securities exchange, commodities exchange or derivatives exchange if it is satisfied—(a)that the applicant is a limited liability company whose liability is limited by shares, or as may be prescribed by the Authority;(b)that the applicant’s board of directors is constituted in a manner prescribed by the Authority;(c)the applicant has made and adopted rules in compliance with the Act and any Regulations made thereunder.(3)Deleted by of Act No. 10 of 2010, s. 47(b).(4)The directors of a securities exchange, commodities exchange or a derivatives exchange other than the chief executive shall elect a chairman from amongst themselves.(5)The function of the board of directors of a securities exchange, commodities exchange or a derivatives exchange shall be the overall administration of the securities exchange.(6)All fees to be charged by a securities exchange, commodities exchange or a derivatives exchange shall be subject to prior approval by the Authority notwithstanding the constitution of such securities exchange.(7)An approved securities exchange, commodities exchange or a derivatives exchange shall comply with all requirements of the Authority and pay an annual fee to the Authority at such rate as the Authority may prescribe.(8)The Authority may require an applicant for a licence as a securities exchange, commodities exchange or a derivatives exchange to lodge an application to be recognized as a self regulatory organization as a condition for obtaining and maintaining its licence. 21.Changes in securities exchange, commodities exchange rules(1)The rules of an approved securities exchange, commodities exchange or a derivatives exchange, in so far as they have been approved by the Authority, shall not be amended, varied or rescinded without the prior approval of the Authority.(2)Where the board of directors of an approved securities exchange, commodities exchange or a derivatives exchange wishes to amend its rules, it shall forward the amendments to the Authority for approval.(3)The Authority shall, after hearing from the securities exchange, commodities exchange or a derivatives exchange, and within thirty days of receipt of a notice under subsection (2) give written notice to the securities exchange, commodities exchange or a derivatives exchange stating whether such amendments to the rules are allowed or disallowed and in the event of the rules being disallowed, the Authority shall give reasons for such disallowance.(4)Notwithstanding the provisions of paragraph (2), a proposed rule change may take effect upon filing with the Authority if designated by the exchanges as—(a)a stated policy, practice or interpretation with respect to the meaning, administration or enforcement of an existing rule;(b)a proposal establishing or changing a fee or other charge; or(c)a proposal dealing solely with the administration of the exchange or other matters which the Authority may specify.(5)In addition to the provisions of subsection (4), the Authority may add other items which it determines to be appropriate in fulfilling its objective under this Act:Provided that the Authority may summarily abrogate such exchange rules within thirty days of their implementation and require that the rules undergo the procedure prescribed in subsection (3) except that the summary abrogation shall not effect the validity of the rules while in force nor shall it be subject to appeal.(6)Where an approved securities exchange, commodities exchange or a derivatives exchange proposes to alter any particulars already furnished or undergoes or intends to undergo a change from its state specified in the application for approval it shall inform the Authority and obtain its prior consent before such alteration or change is effected. 21A.Securities exchange to make rulesAn approved securities exchange may make rules for the carrying out of its functions and, in particular, for the regulation of its activities, products, systems and fees. 21B.Submission of rules to AuthorityNot less than thirty days prior to the proposed date of introduction of the rules made under section 21A, an approved securities exchange shall submit the rules to the Authority for review and consideration to determine if there exists risks that have not been adequately mitigated in the proposed rules. 21C.Authority may abrogate rulesSubject to section 21B, the Authority may abrogate any rules made under section 21A if there exists risks that have not been adequately mitigated in the rules. 22.Disciplinary action by securities exchange(1)Where a securities exchange or a derivatives exchange reprimands, fines, suspends or expels, or otherwise takes disciplinary action against a trading participant or a listed company, it shall within seven days give notice to the Authority in writing, giving particulars including the name of the person, the reason for and nature of the action taken.(2)The Authority may review any disciplinary action taken by a securities exchange or derivatives exchange under subsection (1) and, on its own motion, or in response to the appeal of an aggrieved person, may affirm or set aside a securities exchange or derivatives exchange decision after giving the trading participant or the company and the securities exchange or derivatives exchange an opportunity to be heard.(3)Nothing in this section shall preclude the Authority, in any case where a securities exchange fails to act against a trading participant or a listed company or a derivatives exchange fails to act against a futures member, from itself, suspending, expelling or otherwise disciplining the subject person, but before doing so the Authority shall give such persons and the exchange an opportunity to be heard. 22A.Directions to a securities exchange, commodities exchange and a futures exchange(1)The Authority may, by notice in writing, issue a general or specific direction to a securities exchange, commodities exchange or derivatives exchange where it considers it necessary or expedient—(a)to ensure—(i)the fair, transparent and efficient operation of a securities market, commodities markets or derivatives market;(ii)the fair, transparent and effective clearing and settlement of transactions in exchange-traded derivatives contracts or securities transactions;(iii)the integrity and proper management of systemic risks in securities markets, commodities markets or derivatives market; or(iv)a fair and proper governance structure of the securities exchange, commodities exchange or derivatives exchange;(b)in the interest of the public; or(c)for the protection of the interests of investors.(2)Without prejudice to the generality of subsection (1), a direction issued by the Authority may provide for—(a)the clearing or settlement of securities or exchange-traded derivatives contracts and the making of adjustments to contractual obligations arising out of those securities transactions or exchange-traded derivatives contracts;(b)the trading or the termination of trading on or through the facilities of that securities exchange, commodities exchange or derivatives exchange;(c)the manner in which a securities exchange, commodities exchange carries on its business, including the reporting of off-market trades by trading participants of the securities exchange; or(d)any other matter that the Authority may consider necessary for the effective administration of this Act. 22B.Powers of the Authority to intervene in the operations of securities and futures exchanges(1)The Authority may, where—(a)there is in place, an act of Government affecting securities or commodities;(b)there is a major market disturbance which prevents the market from accurately reflecting the forces of supply and demand for such securities or commodities;(c)there is a threatened or actual manipulation of the market;(d)the Authority considers it necessary or expedient in the interest of the public or for the protection of the interests of the investors,direct, by notice in writing, a securities exchange or a derivatives exchange to take such action as the Authority considers necessary to—(i)maintain or restore the fair, efficient and transparent trading in securities or any class of securities or exchange-traded derivatives contracts or any class of exchange-traded derivatives contracts; or(ii)liquidate any position in respect of any securities or any class of securities or exchange-traded derivatives contracts or any class of exchange-traded derivatives contracts.(2)A notice issued under subsection (1) may include a directive—(a)terminating trading on a securities market or a derivatives market or trading of a specific security or a exchange-traded derivatives contract;(b)suspending trading on a securities market or derivatives market or trading of a specific security;(c)confining trading to liquidation of securities or exchange-traded derivatives contracts’ positions;(d)ordering the liquidation of all positions or part thereof or the reduction in such positions;(e)limiting trading to a specific price range;(f)modifying the trading days or hours;(g)altering the conditions of delivery;(h)fixing the settlement price at which exchange-traded derivatives contracts’ positions are to be liquidated;(i)requiring any person to act in a specified manner in relation to trading in securities or any class of securities or exchange-traded derivatives contracts or any class of exchange-traded derivatives contracts;(j)requiring margins or additional margins for any securities or exchange-traded derivatives contracts; and(k)modifying or suspending any of the rules of a securities exchange or a derivatives exchange.(3)Where the Authority suspends trading under subsection (2)(b), the suspension shall not exceed a period of three months:Provided that the Authority may, if it considers it necessary, extend the suspension for one further period not exceeding three months at the expiry of which the Authority shall either notify the securities exchange or the derivatives exchange in writing that the suspension has expired, or proceed to cancel the securities exchange or the derivatives exchange license, as the Authority considers appropriate.(4)Where a securities exchange or a derivatives exchange fails to comply with a direction of the Authority within the time specified in the notice issued under subsection (2), the Authority may—(a)set emergency margin levels in any securities or class of securities or any exchange-traded derivatives contracts or class of exchange-traded derivatives contracts;(b)set limits that may apply to market positions acquired in good faith prior to the date of the direction of the Authority; or(c)take such other action as the Authority may consider necessary to maintain or restore fair, efficient and transparent trading in any securities or class of securities or exchange-traded derivatives contracts or class of exchange-traded derivatives contracts, or liquidation of any position in respect of exchange-traded derivatives contracts or class of exchange-traded derivatives contracts. 22C.Futures contract to be approved by the Authority(1)A derivatives exchange shall not permit the trading of an exchange-traded derivatives contract on the derivatives market established or operated by the derivatives exchange without the written approval of the Authority to trade in such exchange-traded derivatives contracts.(2)The Authority may grant approval for the trading of an exchange-traded derivatives contract on the derivatives market established or operated by the derivatives exchange subject to such conditions or restrictions as the Authority may impose.(3)The Authority may, by notice in writing, withdraw the approval granted under subsection (1) with effect from the date specified in the notice where—(a)the derivatives exchange fails to comply with a condition or restriction imposed under subsection (2); or(b)the Authority considers that it would be contrary to the interests of the investing public to permit the trading in that exchange-traded derivatives contract to continue.(4)The Authority shall not withdraw its approval under subsection (3) without first giving the derivatives exchange an opportunity to be heard.(5)An exchange-traded derivative contract approved to trade on a derivatives market of a derivatives exchange by the Authority under this Act shall be lawful for all purposes and shall not constitute a gaming or wagering contract under the Betting, Lotteries and Gaming Act. 22D.Fixing of position and trading limits in futures contracts(1)The Authority may, for the purpose of preventing, diminishing or eliminating excessive speculation in any commodity under an exchange-traded derivatives contract, by notice in writing, from time to time, fix such limits as the Authority considers necessary on the amount of trading which may be done or exchange-traded derivatives contracts’ positions which may be held by any person, generally or specifically, under an exchange-traded derivatives contract traded on the derivatives market of or subject to the rules of a derivatives exchange.(2)The limits upon exchange-traded derivatives contracts’ positions and trading fixed by the Authority under subsection (1) shall apply to positions held by, and trading done by two or more persons acting in accordance with an express or implied agreement or understanding, as if the positions were held by, or the trading done by a single person.(3)A person shall not, directly or indirectly—(a)buy or sell or agree to buy or sell, under an exchange-traded derivatives contract traded on the derivatives market of or subject to the rules of a derivatives exchange, any number of contracts in excess of the trading limits fixed for one business day or any other stated period set by the Authority; or(b)hold or control a gross buy or sell position under an exchange-traded derivatives contract traded on the derivatives market of or subject to the rules of a derivatives exchange in excess of any position limit fixed by the Authority.(4)Nothing in this section shall preclude the Authority from—(a)fixing different trading or position limits for different exchange-traded derivatives contracts, different delivery months or for different days remaining until the last day of trading in an exchange-traded derivatives contract; or(b)exempting transactions under this section. 22E.Default process of a clearing house to take precedence over laws of insolvencyThe provisions in respect of a default process and the precedence of the default process over the laws of insolvency in relation to a central depository under the Central Depositories Act (No. 4 of 2000) shall apply to a clearing house of a securities or a derivatives exchange. PART IV – SECURITIES INDUSTRY LICENCES
PART IVA – PUBLIC OFFERS OF SECURITIES
PART IVB – ASSET BACKED SECURITIES
PART V – SECURITIES TRANSACTIONS AND REGISTERS
PART VI – INSIDER TRADING AND OTHER MARKET ABUSES
32A.Application(1)This Part applies to listed securities, their derivatives and derivatives traded on any market regulated by the Authority.(2)For the purposes of this Part—(a)securities are “price-affected securities” in relation to inside information if the information is likely to, if made public, materially affect the price of the securities;(b)information shall be treated as relating to an issuer of securities where it may affect the business prospects of the company;(c)”insider” means a person in possession of inside information. 32B.Insider trading(1)A person who deals in listed securities or their derivatives that are price-affected in relation to the information in his possession commits an offence of insider trading if that person—(a)encourages another person, whether or not that other person knows it, to deal in securities or their derivatives which are price-affected securities in relation to the information in the possession of the insider, knowing or having reasonable cause to believe that the trading would take place; or(b)discloses the information, otherwise than in the proper performance of the functions of his employment, office or profession, to another person.(3)For the purposes of subsections (1) and (2), a person deals in securities or their derivatives if, whether as principal or agent, sells, purchases, exchanges or subscribes for any listed securities or their derivatives or acquires or disposes of, or agrees to acquire or dispose of the right to sell, purchase, exchange or subscribe for any listed securities or their derivatives.(4)A contract shall not be void or unenforceable by reason only of the commission of an offence under this section. 32C.Inside information(1)For the purposes of this Part, “inside information” means information which—(a)relates to particular securities or to a particular issuer of securities;(b)has not been made public; and(c)if it were made public is likely to have a material effect on the price of the securities. 32D.Information made public(1)For the purposes of section 32C, information is made public if—(a)it is published in accordance with the rules of a securities exchange for the purpose of informing investors and their professional advisers;(b)it is contained in records which by virtue of any law are open to inspection by the public;(c)it can readily be acquired by those likely to deal in any securities—(i)to which the information relates; or(ii)of an issuer to which the information relates; or(d)is derived from information which has been made public.(2)Information may be treated as having been made public even though the information—(a)can be acquired by persons exercising diligence or expertise;(b)is communicated to a section of the public;(c)can be acquired by observation;(d)is communicated on the payment of a fee; or(e)is published outside Kenya. 32E.Penalty for insider tradingA person who contravenes the provisions of section 32B commits an offence and is liable on conviction—(a)on a first offence, in the case of—(i)an individual, to a fine not exceeding two million five hundred thousand shillings or to imprisonment for a term of two years and payment of the amount of the gain made or loss avoided; and(ii)a company, to a fine of up to five million shillings and payment of the amount of the gain made or loss avoided;(b)on any subsequent offence, in the case of—(i)an individual, to a fine not exceeding five million shillings or to an imprisonment for seven years and payment of twice the amount of the gain made or loss avoided ; and(ii)a company, to a fine not exceeding ten million shillings and payment of twice the amount of the gain made or loss avoided. 32F.Market manipulation(1)A person who enters into or carries out, directly or indirectly, two or more transactions in the securities of a company, or in other listed securities, which by themselves or in conjunction with any other transaction—(a)increase, or are likely to increase the price with the intention of inducing another person to purchase, or subscribe for, or to refrain from selling securities issued by the same company or a related company, or such other listed securities;(b)reduce, or are likely to reduce, the price with the intention of inducing another person to sell, or to refrain from purchasing, securities issued by the same company or a related company, or such other listed securities; or(c)stabilize, or are likely to stabilize, the price with the intention of inducing another person to sell, purchase, or subscribe for, or to refrain from selling, purchasing or subscribing for, securities issued by the same company or by a related company, or such other listed securities,commits an offence.(2)For the purposes of this section, “securities” includes exchange-traded derivatives contracts, and options on futures contracts, in connection with securities. 32G.False trading and market rigging(1)A person who creates or does anything which is intended or likely to create a false or misleading impression—(a)of active trading in securities on the securities market of a securities exchange; or(b)with respect to the market for, or the price for dealings in, securities traded on the securities market of a securities exchange;commits an offence.(2)Without prejudice to the generality of subsection (1), a false or misleading impression of active trading in securities is created for the purpose of this section if a person—(a)enters into or carries out, directly or indirectly, any transaction for the sale or purchase of securities which does not involve a change in the beneficial ownership of the securities, or offers to do so; or(b)offers to sell securities at a price which is substantially the same as the price at which he has made or proposes to make, or knows that an associate of his has made or proposes to make an offer to buy the same or substantially the same number of securities. 32H.Fraudulently inducing trading in securitiesA person who induces or attempts to induce another person to subscribe for, sell or purchase securities by—(a)making or publishing any statement, promise or forecast that is false, misleading or deceptive;(b)concealing any material facts;(c)making or publishing any statement, promise or forecast which is misleading, false or deceptive; or(d)recording or storing in, or by means of, any mechanical, electrical or other device, information that is false or misleading,commits an offence. 32I.Use of manipulative devicesA person who, directly or indirectly, in connection with any transaction with any other person involving the subscription, purchase or sale of securities—(a)uses any device, scheme or artifice to defraud the other person;(b)engages in any act, practice or course of business which is fraudulent, deceptive or likely to defraud or deceive that other person; or(c)makes any false statement in relation to a matter or omits to state a material fact that is necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading,commits an offence. 32J.False or misleading statements inducing securities transactionsA person who, directly or indirectly, for the purpose of inducing the subscription for, sale or purchase of securities by another person of any company, or of any other listed securities, or to maintain, increase, reduce or stabilize the price of such securities, makes with respect to the securities—(a)any statement which is, at the time and in light of the circumstances in which it is made, false or misleading with respect to any material fact and which that person knows or reasonably ought to know is false or misleading; or(b)any statement which is, by reason of the omission of a material fact, rendered false or misleading and which that person knows or ought to know is rendered false or misleading by reason of omission of that fact,commits an offence. 32JA.Front-running(1)Any person in a market intermediary who has insider information on client orders with a price differential or is aware of such orders and effects an own account transaction in the securities concerned or in any related investments directly or through any other person, to take advantage of the price differential before the client order is executed commits an offence.(2)Any other person who facilitates the commission of the offence referred to in subsection (1) commits an offence. 32K.Liability to pay damages(1)A person who is convicted of an offence under this Part shall, in addition to the penalty imposed for committing the offence, be liable to an action by a person who has sustained pecuniary loss as a result of having purchased or sold securities at a price affected by the act or transaction which comprises or is the subject of the offence, to an action for damages in respect of the loss concerned.(2)Nothing in subsection (1) shall be construed to limit or diminish any civil liability which any person may incur under any other Act or law. 32KA.Obtaining gain by fraudAny person who on his own action or conspires with another by deceit, intentional concealment, omission or any fraudulent means to obtain financial or personal gain from the public, an issuer or a regulated person commits an offence. 32L.Penalty for insider trading and market abuseA person who contravenes the provisions of this Part commits an offence and is liable on conviction in the case of—(a)an individual, to a fine not exceeding five million shillings or to imprisonment for a term of two years and payment of twice the amount of the gain made or loss avoided;(b)company, to a fine not exceeding ten million shillings and payment of twice the amount of the gain made or loss avoided. PART VII – MISCELLANEOUS PROVISIONS
