The Capital Markets (Derivatives Markets) Regulations

These Regulations may be cited as the Capital Markets (Derivatives Markets) Regulations.

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Jurisdiction: Kenya
Instrument: Notice
Citation: Legal Notice 37 of 2016
Version: Undated source snapshot
Language: en

Source attribution: Source: Kenya Law

Statute overview

About this statute

These Regulations may be cited as the Capital Markets (Derivatives Markets) Regulations. Section heading referencing interpretation and the phrase "derivatives exchange". The Authority may grant a licence to an applicant to operate a derivatives exchange if the provisional licence period has expired and the applicant has complied with regulations 4, 5, 6, 7 and other relevant Act requirements. A licence granted under regulation 10 remains valid unless the Authority suspends or revokes it. A derivatives exchange must pay a regulatory fee.

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Provisions of The Capital Markets (Derivatives Markets) Regulations

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Part I

PRELIMINARY

1
PRELIMINARY - 1. Citation

AI-assisted research summary: These Regulations may be cited as the Capital Markets (Derivatives Markets) Regulations.

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Derivatives Markets) Regulations.
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PRELIMINARY - 2. Interpretation

AI-assisted research summary: Section heading referencing interpretation and the phrase "derivatives exchange".

Section 2. Interpretation Section derivatives exchange;

Part II

LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE

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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 10. Grant of licence

AI-assisted research summary: The Authority may grant a licence to an applicant to operate a derivatives exchange if the provisional licence period has expired and the applicant has complied with regulations 4, 5, 6, 7 and other relevant Act requirements.

Section 10. Grant of licence Section 10(1) The Authority may, after the expiry of the period for which the provisional licence had been granted under regulation 8 and if the Authority is satisfied that the applicant has complied with regulations 4, 5, 6, 7 and any other relevant requirements under the Act, grant a licence to the applicant to operate a derivatives exchange. Section 10(2)(a) the nature of derivatives contracts to be dealt with by that derivatives exchange; and Section 10(2)(b) approval by the Authority of all derivatives contracts to be listed by that derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 11. Period of licence

AI-assisted research summary: A licence granted under regulation 10 remains valid unless the Authority suspends or revokes it.

Section 11. Period of licence Section A licence granted under regulation 10 shall remain valid unless suspended or revoked by the Authority.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 12. Regulatory fee

AI-assisted research summary: A derivatives exchange must pay a regulatory fee.

Section 12. Regulatory fee Section A derivatives exchange shall pay a regulatory fee as set out in the Second Schedule or as may be imposed by the Authority from time to time.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 13. Revocation of licence

AI-assisted research summary: The Authority may revoke a derivatives exchange licence for listed grounds; before revocation it must give the exchange an opportunity to be heard (except on a request by the exchange), and must publish notice of revocation in at least two nationwide newspapers.

Section 13. Revocation of licence Section 13(1)(a) ceases to comply with the eligibility conditions specified under regulations 5, 6, and 7; Section 13(1)(b) ceases to operate a derivatives market that it has been to operate under regulation 10; Section 13(1)(c) is being wound up; Section 13(1)(d) fails to comply with any requirement of the Act or these Regulations; Section 13(1)(e) fails to comply with a direction of the Authority; Section 13(1)(f) fails to provide the Authority with information required by the Authority; Section 13(1)(g) provides false or misleading information; Section 13(1)(h) is operating in a manner detrimental to the public interest; or Section 13(1)(i) requests the Authority to do so. Section 13(2) For the purposes of subsection (1), a derivatives exchange shall be deemed to have ceased to operate its derivatives market if the derivatives exchange has ceased to operate its derivatives market for more than thirty days unless the derivatives exchange has obtained prior written approval of the Authority to do so. Section 13(3)(a) closing down the operations of the derivatives exchange; or Section 13(3)(b) protecting the interests of the public. Section 13(4) The Authority shall not, except where responding to a request under subregulation (1)(i), revoke a derivatives exchange licence without giving the derivatives exchange an opportunity to be heard. Section 13(5) Where the Authority revokes the licence of a derivatives exchange, the Authority shall publish a notice of that revocation in at least two newspapers of nationwide circulation in Kenya.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 14. Effect of revocation

AI-assisted research summary: Effect of revocation

Section 14. Effect of revocation
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 15. Net worth requirements

AI-assisted research summary: Derivatives exchanges must maintain adequate liquid net worth, have systems to monitor it, and submit periodic (quarterly and annual audited) liquid net worth certificates to the Authority.

Section 15. Net worth requirements Section 15(1) A derivatives exchange shall maintain, at all times, liquid net worth amounts of a type acceptable to the Authority, which shall be adequate in relation to the nature, size and complexity of the business of that derivatives exchange to ensure that there is no significant risk that liabilities may not be met as they fall due. Section 15(2)(a) an amount equal to one half of the estimated gross operating costs of the derivatives exchange for the next twelve-month period; or Section 15(2)(b) such other liquid networth amount as may be prescribed by the Authority. Section 15(3) A derivatives exchange shall have systems and controls to enable the derivatives exchange to determine and monitor whether its liquid networth is sufficient for the purposes of subregulation (1) and the minimum liquid net worth requirement for the purposes of subregulation (2). Section 15(4) A derivatives exchange shall submit to the Authority a liquid net worth certificate within thirty days after the end of each quarter. Section 15(5) A derivatives exchange shall, at least once in each year, submit to the Authority an audited liquid net worth certificate from the auditor within ninety days after the end of each year. [L.N. 37/2025, r. 2.]
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 16. General conditions

AI-assisted research summary: Persons holding shares or voting rights in a derivatives exchange must not exceed the limits specified in this Part.

Section 16. General conditions Section 16(1) Save as otherwise provided for in these Regulations, the shareholding or voting rights of any person in a derivatives exchange shall, at all times, not exceed the limits specified in this Part. Section 16(2) The shareholding as specified in this Part shall include any instrument owned or controlled, directly or indirectly, which provides for entitlement to equity or rights over equity at any future date.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 17. Shareholding in a derivatives exchange

AI-assisted research summary: Section 17 requires at least 15% of a derivatives exchange's paid-up equity to be held by a Kenyan entity; it also limits any person from holding, voting, appointing directors or receiving dividends in excess of 25%; individual applicants who do not meet the requirements must comply within five years; an exception exists for sufficiently diverse corporate shareholders.

Section 17. Shareholding in a derivatives exchange Section 17(1) At least fifteen percent of the paid up equity share capital of a derivatives exchange shall be held by a Kenyan entity. Section 17(2)(a) control or be beneficially entitled directly or indirectly, to more than twenty five percent of the issued share capital or voting rights of a derivatives exchange; Section 17(2)(b) be entitled to appoint more than twenty-five per cent of a board; or Section 17(2)(c) be entitled to receive more than twenty-five percent of the aggregate dividends to be paid in any given financial year. Section 17(3) Where an applicant under subregulation (2) is an individual and does not meet the requirements of this regulation, that individual shall be required to comply with the requirements of this regulation within five years from the date of issue of a licence to operate a derivatives exchange. Section 17(4) Subregulation (2) shall not apply where the ownership structure of a corporate shareholder is sufficiently diverse and no single person holds or controls more than twenty-five percent of its shares, votes, directorship appointments or dividend.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 18. Eligibility for acquiring or holding shares

AI-assisted research summary: Persons may not acquire or hold 5% or more of a derivatives exchange unless certified fit and proper; proposed acquisitions over 5% require Authority approval at least 15 days before; holders over 5% must declare compliance annually within 15 days of year-end; non-compliant holders must cease voting on notification and reduce holdings to under 5% within 12 months (or longer if Authority determines).

Section 18. Eligibility for acquiring or holding shares Section 18(1) A person shall not, directly or indirectly, acquire or hold five per cent or more of the equity shares of a derivatives exchange unless that person has been certified by the Authority as fit and proper. Section 18(2) A person who, directly or indirectly, either individually or collectively with other persons, plans to acquire equity shares such that the shareholding of that person exceeds five percent of the paid up equity share capital of a derivatives exchange, shall seek approval of the Authority at least fifteen days prior to the proposed date of acquisition. Section 18(3) A person who holds more than five percent of the paid up equity share capital in a derivatives exchange, shall file a declaration within fifteen days of the end of every financial year to the derivatives exchange, as the case may be, that person complies with the fit and proper criteria provided in the Act. Section 18(4)(a) holds five per cent or more of the equity shares of a derivatives exchange; and Section 18(4)(b) shall cease to exercise any voting rights immediately upon the derivatives exchange being notified in writing by the Authority, that the shareholder does not fulfill the fit and proper criteria as set under the Act; and Section 18(4)(b)(i) shall cease to exercise any voting rights immediately upon the derivatives exchange being notified in writing by the Authority, that the shareholder does not fulfill the fit and proper criteria as set under the Act; and Section 18(4)(b)(ii) reduce the holding of equity shares to less than five per cent of the share capital of the derivatives exchange within twelve months, or such longer period as the Authority may determine.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 19. Disclosure of shareholding

AI-assisted research summary: A derivatives exchange must disclose its shareholding pattern to the Authority quarterly (in the Authority's specified format) within fifteen days after each quarter and must at all times monitor and ensure compliance with this Part; the disclosure must include the ten largest shareholders with numbers and percentages and shareholders under regulations 17 and 18 who acquired shares that quarter.

Section 19. Disclosure of shareholding Section 19(1) Without prejudice to any provision of these Regulations, a derivatives exchange shall disclose to the Authority, in the format specified by the Authority, the shareholding pattern of the derivatives exchange on a quarterly basis within fifteen days from the end of each quarter. Section 19(2)(a) the names of the ten largest shareholders and the number and percentage of shares held by each of them; Section 19(2)(b) the names of the shareholders falling under regulations 17 and 18 who acquire shares in that quarter. Section 19(3) A derivatives exchange shall at all times monitor and ensure compliance with this Part.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 20. Record keeping

AI-assisted research summary: Section title: Record keeping

Section 20. Record keeping
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 21. Composition of the board

AI-assisted research summary: Board composition lists shareholder directors, at least one-third public interest directors, and a chief executive officer; derivatives brokers who are members, associates or agents may not be board members; at least one public interest director must attend board meetings for a quorum.

Section 21. Composition of the board Section 21(1)(a) shareholder directors; Section 21(1)(b) at least one third public interest directors; and Section 21(1)(c) a chief executive officer: Section 21(2) A derivatives broker who is a derivatives member or an associate or an agent of that derivatives broker shall not be a member of the board of any derivatives exchange. Section 21(3) At least one public interest director shall be present in the meetings of the board to constitute the quorum.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 22. Conditions of appointment of directors

AI-assisted research summary: Derivatives exchanges must submit proposed directors' names to the Authority thirty days before appointment; public interest directors serve three-year fixed terms and may be reappointed once.

Section 22. Conditions of appointment of directors Section 22(1) A derivatives exchange shall submit for approval by the Authority, the names of proposed directors for appointment to the board of a derivatives exchange thirty days prior to their appointment or re-appointment. Section 22(2) A public interest director appointed under subregulation (1) shall serve for a fixed term of three years and shall be eligible for reappointment for one further term.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 23. Appointment of chief executive officer

AI-assisted research summary: Sets rules for appointing a derivatives exchange chief executive: exchanges may change the chief executive only with the Authority's prior written consent and subject to Authority conditions; exchanges must set qualifications and appointment procedures according to Authority guidelines; CEO contracts must be 3–5 years and may be renewed once; the Authority may terminate a CEO in the public interest but must give the CEO a reasonable opportunity to be heard.

Section 23. Appointment of chief executive officer Section 23(1) A derivatives exchange may change its chief executive with the prior written consent of the Authority and in accordance with any conditions that may be imposed by the Authority. Section 23(2) A derivatives exchange shall, subject to the guidelines issued by the Authority from time to time, determine the qualification, manner of appointment, terms and conditions of appointment and other procedural formalities associated with the appointment of the chief executive officer. Section 23(3) The tenure under any contract for the chief executive officer of a derivatives exchange shall not be less than three years and not exceeding five years: Provided that the tenure of office of the chief executive of a derivatives exchange may be renewed for one further term. Section 23(4)(a) a shareholder or an associate of a shareholder of any derivatives exchange; or Section 23(4)(b) a shareholder or an associate of a derivatives broker. Section 23(5)(a) if the chief executive officer fails to comply with the articles of association of the derivatives exchange; or Section 23(6) The Authority may on its own motion, terminate the appointment of a chief executive officer of a derivatives exchange if the Authority considers it to be in the public interest: Provided that the Authority shall not terminate such services without giving the chief executive officer a reasonable opportunity of being heard.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 24. Code of conduct for directors and key personnel

AI-assisted research summary: Directors and key personnel of a derivatives exchange must follow the specified Codes (Conduct and Ethics) and be fit and proper; the Authority may take actions including removal if a director fails to comply after a hearing opportunity.

Section 24. Code of conduct for directors and key personnel Section 24(1) Every director of a derivatives exchange shall abide by the Code of Conduct set out in Part A of the Third Schedule. Section 24(2) Every director and key personnel of a derivatives exchange shall abide by the Code of Ethics set out in Part B of the Third Schedule. Section 24(3) Every director and key personnel of a derivatives exchange and its clearing house shall be fit and proper persons as prescribed under section 24A of the Act. Section 24(4) The Authority may, if a director of a derivatives exchange fails to abide by these Regulations, the Code of Conduct or the Code of Ethics or in case of any conflict of interest, either upon a reference from the derivatives exchange or on its own motion, take appropriate action including removing or terminating the appointment of any director, after providing that director a reasonable opportunity of being heard.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 25. Compensation and tenure of key personnel

AI-assisted research summary: A derivatives exchange must establish a compensation committee made up mostly of public interest directors.

Section 25. Compensation and tenure of key personnel Section 25(1) A derivatives exchange shall establish a compensation committee comprising of a majority of public interest directors. Section 25(2)(a) be chaired by a public interest director; and Section 25(2)(b) establish a compensation policy for all employees of the derivatives exchange. Section 25(3) The compensation policy under subregulation (2) (b) shall be subject to the approval of the Authority. Section 25(4) The compensation given to the key personnel shall be disclosed in the annual report of the derivatives exchange. Section 25(5) The tenure of key personnel, other than a director, shall be for a fixed period, or as may be determined by the derivatives exchange compensation committee.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 26. Segregation of regulatory departments

AI-assisted research summary: A derivatives exchange must separate its regulatory department from its other departments in the manner set out in Part C of the Third Schedule.

Section 26. Segregation of regulatory departments Section A derivatives exchange shall separate the regulatory department from other departments in the manner set out in Part C of the Third Schedule.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 27. Oversight committees

AI-assisted research summary: A derivatives exchange must establish independent oversight committees of the board.

Section 27. Oversight committees Section 27(1) A derivatives exchange shall establish independent oversight committees of the board. Section 27(2)(a) be chaired by a public interest director; and Section 27(2)(b) the regulation of futures brokers who are derivatives members; Section 27(2)(b)(i) the regulation of futures brokers who are derivatives members; Section 27(2)(b)(ii) derivatives contracts design; and Section 27(2)(b)(iii) trading and surveillance functions. Section 27(3) A head of department handling the matters referred to in subregulation (2)(b) shall report directly to the respective committee and to the chief executive officer. Section 27(4) Any action of a derivatives exchange against a head of a regulatory department specified under subregulation (2) (b) shall be subject to an appeal to the respective committee, within such period as the board may determine.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 28. Advisory Committee

AI-assisted research summary: The board of a derivatives exchange must establish an advisory committee of derivatives brokers to advise the board on non-regulatory and operational matters; the committee must meet at least four times a year, table recommendations to the board, and recommendations and the board's decisions must be disclosed on the exchange's website; the Chairperson and CEO are permanent invitees; a derivatives member must not sit on any other committee.

Section 28. Advisory Committee Section 28(1) The board of a derivatives exchange shall establish an advisory committee mandated to advise the board on non-regulatory and operational matters including product design, technology, charges and levies. Section 28(2) The advisory committee established under subregulation (1) shall comprise of the derivatives brokers who are members of a derivatives exchange. Section 28(3) The Chairperson of the board and the chief executive officer shall be permanent invitees to every meeting of the advisory committee. Section 28(4) The advisory committee shall meet at least four times a year but a period of three months shall not elapse between the date of one meeting and the next meeting. Section 28(5) The recommendations of the advisory committee shall be tabled at the meeting of the board of the derivatives exchange for consideration and appropriate decision of the board, and such recommendations along with the decision of the board on the same, shall be disclosed on the website of the derivatives exchange. Section 28(6) A derivatives member shall not be a member of any other committee of the derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 29. Risk management Committee

AI-assisted research summary: Derivatives exchanges must establish a risk management committee of directors and independent external experts; the committee must report to the board, formulate and monitor a board‑approved risk management policy, and keep the Authority and board informed; the committee is responsible for implementing the policy.

Section 29. Risk management Committee Section 29(1) A derivatives exchange shall establish a risk management committee comprising of directors and independent external experts. Section 29(2)(a) report to the board; Section 29(2)(b) formulate a detailed risk management policy which shall be approved by the board; Section 29(2)(c) monitor the implementation of the risk management policy; and Section 29(2)(d) keep the Authority and the board informed on the implementation of policy and any deviation. Section 29(3)(a) be responsible for implementation of the risk management policy; and Section 29(3)(b) report to the risk management committee and to the chief executive officer of the derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 3. Obligation to obtain a licence

AI-assisted research summary: A person must not establish, run, conduct, organize or assist in a derivatives exchange unless that person has obtained a licence from the Authority; a securities exchange already operating under the Act that wants to run a derivatives market must apply for an additional licence for listing derivatives contracts.

Section 3. Obligation to obtain a licence Section A person shall not establish, run, conduct, organize or assist in establishing, running, conducting or organizing a derivatives exchange unless that person has obtained a licence from the Authority: Provided that a securities exchange, which has been operating under the Act at the commencement of these Regulations and is desirous of running a derivatives market, shall apply to the Authority for an additional licence for listing derivatives contracts under these Regulations and all the provisions of these Regulations shall apply to such securities exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 30. Appointment of compliance officer

AI-assisted research summary: Derivatives exchanges must appoint a compliance officer from their employees; the compliance officer must immediately and independently report any lack of compliance with the matters listed in subregulation (2) to the Authority.

Section 30. Appointment of compliance officer Section 30(1) A derivatives exchange shall appoint a compliance officer from amongst its employees. Section 30(2)(a) monitoring compliance by the derivatives exchange with its articles of association, rules, these Regulations, the Act, any guidelines or directions issued thereunder; and Section 30(2)(b) the redress of investors' grievances. Section 30(3) The compliance officer shall, immediately and independently, report to the Authority, the lack of compliance with any provision stated in subregulation (2).
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 31. Establishment of an investor protection fund

AI-assisted research summary: An investor protection fund must be managed by trustees appointed and holding office under a trust deed drawn by the board of a derivatives exchange.

Section 31. Establishment of an investor protection fund Section 31(1)(a) is separate from the board of a derivatives exchange; Section 31(1)(b) comprises of contributions by derivatives brokers and derivatives exchanges; and Section 31(1)(c) is intended to satisfy the claims of clients against derivatives brokers. Section 31(2) The fund referred to subregulation (1) shall be managed by trustees appointed and holding office under a trust deed drawn by the board of a derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 32. Disclosure and corporate governance norms

AI-assisted research summary: A derivatives exchange must comply with the disclosure requirements and corporate governance norms applicable to listed companies when no specific provisions are made under these Regulations.

Section 32. Disclosure and corporate governance norms Section A derivatives exchange shall comply with the disclosure requirements and corporate governance norms applicable to listed companies where no specific provisions have been made under these Regulations.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 33. Transfer of penalties

AI-assisted research summary: A derivatives exchange may levy penalties for breach of these Regulations.

Section 33. Transfer of penalties Section 33(1) A derivatives exchange may levy penalties for breach of these Regulations. Section 33(2) All penalties levied under subregulation (1) shall be credited to the investor protection fund established by the derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 34. Duties of Derivatives exchange

AI-assisted research summary: This section imposes duties on a derivatives exchange to operate facilities under Authority-approved rules, regulate and ensure compliance of member derivatives brokers, and preserve confidentiality except when disclosure is required by the Authority in writing or ordered by a court.

Section 34. Duties of Derivatives exchange Section 34(1)(a) a fair, efficient and transparent market in derivatives contracts that are traded on its derivatives market; and Section 34(1)(b) that risks associated with the business and operations of that derivatives exchange are managed in a prudent manner. Section 34(2)(a) act in the interest of the public; and Section 34(2)(b) ensure that the interest of the public prevails where it conflicts with the interest of the derivatives exchange, derivatives brokers who are its members, shareholders or the management. Section 34(3) A derivatives exchange shall operate its facilities in accordance with the rules approved by the Authority. Section 34(4) A derivatives exchange shall regulate the operations, standards of practice and business conduct of derivatives brokers who are its members and representatives or other employees of those derivatives brokers in accordance with the rules, policies, procedures and practices of the derivatives exchange. Section 34(5) A derivatives exchange shall formulate and implement appropriate procedures for ensuring that the derivatives brokers who are its members and representatives or other employees of those derivatives brokers comply with the rules of the derivatives exchange. Section 34(6) A derivatives exchange shall preserve confidentiality with regard to all information in its possession concerning derivatives brokers who are its members and their clients, except that such information may be disclosed by the derivatives exchange when required in writing to do so by the Authority or if the derivatives exchange is ordered to do so by a court of law. Section 34(7)(a) that any derivatives broker who is a member of the derivatives exchange is unable to comply with any rules of the derivatives exchange or any financial resources requirements; or Section 34(7)(b) of a financial irregularity or other matter which, in the opinion of the derivatives exchange, may indicate that the financial standing or integrity of a derivatives broker, who is its member, is in question, or that a derivatives broker, who is its member, may not be able to meet its legal obligations.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 35. Facilities to be maintained by a Derivatives exchange

AI-assisted research summary: A Derivatives exchange must maintain adequate and properly equipped premises.

Section 35. Facilities to be maintained by a Derivatives exchange Section adequate and properly equipped premises;
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 36. Derivatives exchange to assist Authority

AI-assisted research summary: A derivatives exchange must provide assistance and information to the Authority as the Authority may require to perform and administer its functions and duties.

Section 36. Derivatives exchange to assist Authority Section 36(1) A derivatives exchange shall provide such assistance to the Authority as the Authority may require for the performance of the functions and duties of the Authority. Section 36(2)(a) the furnishing of returns and the provision of books and other information relating to the business of the derivatives exchange; Section 36(2)(b) information in respect of trading in derivatives contracts; or Section 36(2)(c) such other specified information as the Authority may require for the proper administration of its functions under the Act.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 37. Self-Regulation

AI-assisted research summary: Requires a procedure and appropriate system for exercising self-regulation over its derivatives members.

Section 37. Self-Regulation Section a procedure and appropriate system of exercising self-regulation over its derivatives members;
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 38. Derivatives Exchange to oversee its members

AI-assisted research summary: The Derivatives Exchange must oversee its members.

Section 38. Derivatives Exchange to oversee its members
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 39. Accounts and audit

AI-assisted research summary: Derivatives exchanges must keep proper accounting records, prepare annual statements after each financial year, have those statements audited, send the auditor's report and the statements to the Authority immediately on receipt, and auditors must prepare and submit a report on the accounts.

Section 39. Accounts and audit Section 39(1) A derivatives exchange shall keep proper books of account and records of income and expenditure, assets and liabilities and all other transactions of the derivatives exchange. Section 39(2) The derivatives exchange shall, as soon as practicable after the end of each financial year, prepare a statement of accounts of the derivatives exchange for the financial year, including a statement of comprehensive income and a statement of financial position. Section 39(3) The derivatives exchange shall submit the statement of accounts prepared under subregulation (2) to its auditors for audit. Section 39(4) The auditors shall prepare a report on the accounts and submit the report to the derivatives exchange. Section 39(5) A derivatives exchange shall, immediately upon receipt of the auditor's report referred to under subregulation (4), send a copy of the report and a copy of the statement of accounts to the Authority. Section 39(6)(a) the opinion of the auditor, whether the statement of comprehensive income for the financial year to which the report relates gives a true and fair view of the surplus or deficit of the derivatives exchange; and Section 39(6)(b) a statement whether, in the opinion of the auditor, the statement of financial position for the financial year gives a true and fair view of the derivatives exchange financial affairs at the end of that financial year. Section 39(7)(a) provide any information; and Section 39(7)(b) produce for inspection any books, vouchers and other records;
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 4. Application for licence

AI-assisted research summary: A person intending to establish a derivatives exchange must submit an application for licensing to the Authority in the Form set out in the First Schedule and provide the documents and information listed in Section 4(2)(a)–(f).

Section 4. Application for licence Section 4(1) A person who intends to establish a derivatives exchange shall submit an application for licensing to the Authority in the Form set out in the First Schedule. Section 4(2)(a) are in a form satisfactory to the Authority; and Section 4(2)(a)(i) are in a form satisfactory to the Authority; and Section 4(2)(a)(ii) restrict the applicant to the business of operating a derivatives market and services incidental thereto; Section 4(2)(b) details of trading, clearing and settlement systems proposed to be adopted by the applicant; Section 4(2)(c) the prescribed licensing fees set out in the Second Schedule; Section 4(2)(d) satisfactory bank references; Section 4(2)(e) a business feasibility plan evaluated by an entity with a proven track record and expertise in derivatives or derivatives market development, establishment or management; and Section 4(2)(f) such additional documents as the Authority may require.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 40. The Authority may appoint an auditor

AI-assisted research summary: The Authority may, where satisfied it is in the public interest, in writing, appoint an auditor at the expense of the derivatives exchange to examine, audit and report on the exchange's books, accounts and records.

Section 40. The Authority may appoint an auditor Section The Authority may, where the Authority is satisfied that it is the public interest to do so, appoint an auditor, in writing, at the expense of the derivatives exchange, to examine, audit, and report, either generally or in relation to any matter, on the books, accounts and records of the derivatives exchange.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 41. Annual report

AI-assisted research summary: A derivatives exchange must submit an annual report to the Authority within four months after the end of its financial year and the report must contain specified information.

Section 41. Annual report Section 41(1) A derivatives exchange shall, within four months after the end of its financial year, submit to the Authority an annual report. Section 41(2)(a) a description of the activities undertaken by the derivatives exchange in that financial year; Section 41(2)(b) the resources, including financial, technological and human resources, that the derivatives exchange had available and used, in order to ensure compliance with its obligations and, in particular, the obligation of the derivatives exchange to ensure that the derivatives market operates in a fair, efficient and transparent manner; Section 41(2)(c) an analysis of the extent to which the derivatives exchange considers that the activities undertaken, and resources used have resulted in full compliance with all of the obligations of the derivatives exchange under these Regulations and the rules of the derivatives exchange; Section 41(2)(d) the audit report as required under these Regulations; and Section 41(2)(e) any other information and statements as the Authority may specify.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 5. Consideration for grant of licence

AI-assisted research summary: Prescribes that a company be limited by shares.

Section 5. Consideration for grant of licence Section be a company limited by shares;
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 6. Rules of the exchange

AI-assisted research summary: An applicant seeking approval to operate a derivatives exchange must establish and adopt derivatives exchange rules.

Section 6. Rules of the exchange Section 6(1) An applicant seeking approval to operate a derivatives exchange shall establish and adopt derivatives exchange rules. Section 6(2)(a) the clear demarcation of roles and responsibilities of the board, chief executive officer and the statutory committees of the board; Section 6(2)(b) the powers of the chief executive officer including in emergency situations; Section 6(2)(c) the granting of trading rights and non-transferable memberships of the derivatives exchange; Section 6(2)(d) general obligations of the derivatives brokers who are its derivatives members; Section 6(2)(e) specifications of the minimum parameters to be disclosed in respect of derivatives contracts to be listed with prior approval of the Authority; Section 6(2)(f) the clearing and settlement of all trades in derivatives contracts by the clearing house of the derivatives exchange where the clearing house is wholly owned by the exchange or is its subsidiary; Section 6(2)(g) the performance of novation, netting and guarantee settlement of trades; Section 6(2)(h) complete segregation of business accounts of brokers from that of their clients and between different clients; Section 6(2)(i) trading including validation of orders on the derivatives exchange; Section 6(2)(j) the suspension of trading of any derivatives contract for the protection of investors or for the conduct of orderly and fair trading; Section 6(2)(k) investigation into the trading practices and financial transactions of derivatives brokers and their clients; Section 6(2)(l) the clearing house and designated clearing banks of the derivatives exchange; Section 6(2)(m) the margining regime, daily marking to market of all open positions and variation margin call to derivatives brokers and their clients; Section 6(2)(n) the methodology for determining the daily and final settlement prices; Section 6(2)(o) deliveries through the clearing house and obligations of the brokers; Section 6(2)(p) the closing out of derivatives contracts in case of non-compliance with the rules of the derivatives exchange; Section 6(2)(q) the mandatory maintenance of a settlement guarantee fund including provisions for pay in, pay out and topping up; Section 6(2)(r) the mandatory maintenance of an investor protection fund including provisions for pay in, pay out and topping up; Section 6(2)(s) the declaration of an event of default and disposal of defaulter's assets under lien or pledge; Section 6(2)(t) the arbitration of disputes and provision for appeal to the Authority by derivatives brokers and investors; and Section 6(2)(u) any other provisions specified by the Authority.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 7. Trading system

AI-assisted research summary: A proposed derivatives exchange must deploy a trading system; the trading system must be approved by the Authority before implementation.

Section 7. Trading system Section 7(1) A proposed derivatives exchange shall deploy a trading system which shall be approved by the Authority before such system is implemented. Section 7(2)(a) be integrated with a clearing and settlement system; Section 7(2)(b) have an online screen-based trading system for providing direct market access up to the client level via the internet; Section 7(2)(c) be capable of establishing connectivity with brokers and their clients; Section 7(2)(d) have the necessary infrastructure to ensure timely clearing and settlement of trades; Section 7(2)(e) have an adequate risk management mechanism including a pre trade check performed by the trading system; Section 7(2)(f) be capable of providing real time risk management and market surveillance tools for monitoring of trading activities of all brokers and their clients on a real time basis; Section 7(2)(g) provide brokers and their clients a facility for accessing both the daily transactions and financial reports including ledgers; Section 7(2)(h) have a facility to disseminate information about trades, quantities and quotes in real time to at least one information vending network which is accessible to investors in Kenya and internationally; Section 7(2)(i) have adequate systems capacity supported by a business continuity plan including a disaster recovery site; Section 7(2)(j) be established and maintained in a way as to ensure that it is secure and maintains the confidentiality of data; and Section 7(2)(k) have any other features and functionalities specified by the Authority.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 8. Grant of provisional approval

AI-assisted research summary: The Authority may grant a provisional licence to operate a derivatives exchange if the applicant satisfies certain regulatory requirements; the provisional licence is valid for six months and the Authority may extend it for up to three additional months upon sufficient cause.

Section 8. Grant of provisional approval Section 8(1) The Authority may, if satisfied that the applicant has demonstrated that it is capable of complying with the requirements under regulations 4, 5, 6 and 7, grant the applicant a provisional licence to operate a derivatives exchange. Section 8(2) The provisional licence granted under subregulation (1) shall be valid for a period of six months: Provided that the Authority may, upon sufficient cause shown by the applicant, extend the validity of the provisional licence for a further period not exceeding three months.
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LICENSING REQUIREMENTS AND DUTIES OF A DERIVATIVES EXCHANGE - 9. Power to make inquiries and call for information

AI-assisted research summary: The Authority may, before and after granting a provisional licence to an applicant for a derivatives exchange licence, make inquiries and require further information or documents to be furnished.

Section 9. Power to make inquiries and call for information Section The Authority may, before and after granting a provisional licence to an applicant for a derivatives exchange licence, make inquiries and require such further information or document to be furnished, as the Authority may consider necessary.

Part III

CLEARING HOUSE OF A DERIVATIVES EXCHANGE

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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 42. Clearing house of a derivatives exchange

AI-assisted research summary: Clearing house of a derivatives exchange Section managed and operated as a department of the derivatives exchange;

Section 42. Clearing house of a derivatives exchange Section managed and operated as a department of the derivatives exchange;
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 43. Duties of a clearing house of a derivatives exchange

AI-assisted research summary: The clearing house of a derivatives exchange must ensure orderly, fair and expeditious clearing and settlement; manage business risks prudently; act in the public interest (with the public interest prevailing in conflicts); operate per clearing rules; ensure broker compliance; keep broker and client information confidential except when disclosure is required in writing by the Authority, the derivatives exchange or by Court order; address investor complaints; and maintain adequate premises, personnel, automated systems, security and technical support.

Section 43. Duties of a clearing house of a derivatives exchange Section 43(1)(a) in so far as reasonably practicable, there is orderly, fair and expeditious clearing and settlement arrangements for any transactions in derivatives contracts, cleared or settled through its facilities; and Section 43(1)(b) the risks associated with its business and operations are managed in a prudent manner. Section 43(2)(a) act in the interest of the public; and Section 43(2)(b) ensure that where the interest of the public conflicts with its interest, the interest of the public prevails. Section 43(3)(a) operate its facilities in accordance with the established clearing rules; Section 43(3)(b) formulate and implement appropriate procedures to ensure that derivatives brokers comply with its rules; Section 43(3)(c) ensure confidentiality of any information in its possession concerning its derivatives brokers and their clients, subject to disclosure of such information when required in writing to do so by the Authority, the derivatives exchange or if it is ordered by Court to do so; and Section 43(3)(d) have efficient procedures and arrangements to address investor complaints. Section 43(4)(a) that any of its derivatives brokers is unable to comply with any rule of the clearing house or the derivatives exchange; and Section 43(4)(b) the financial standing or integrity of a derivatives broker is in question; or Section 43(4)(b)(i) the financial standing or integrity of a derivatives broker is in question; or Section 43(4)(b)(ii) a derivatives broker may not be able to meet its legal obligations. Section 43(5)(a) equate and properly equipped premises; Section 43(5)(b) competent personnel; Section 43(5)(c) automated systems with adequate capacity and facilities to meet contingencies or emergencies, Section 43(5)(d) security arrangements; and Section 43(5)(e) technical support for the conduct of its business.
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 44. Clearing and settlement rules of a derivatives exchange

AI-assisted research summary: Derivatives exchanges and, where separate, clearing houses must make rules governing clearing and settlement, including specific items and default procedures; derivatives brokers must ensure employees comply with clearing house rules.

Section 44. Clearing and settlement rules of a derivatives exchange Section 44(1) A derivatives exchange shall make rules for its clearing house. Section 44(2) Where a clearing house is a distinct entity from a derivatives exchange, the clearing house shall make its own rules. Section 44(3)(a) registration of derivatives contracts; Section 44(3)(b) settlement of transactions involving derivatives contracts; Section 44(3)(c) guarantee to its derivatives brokers the settlement of derivatives contracts; Section 44(3)(d) types of margins to be applied on all open positions; Section 44(3)(e) periodic marking to market of all open positions; Section 44(3)(f) determining the daily settlement price and the final settlement price; Section 44(3)(g) setting up a settlement guarantee fund; Section 44(3)(h) setting up an investor protection fund; and Section 44(3)(i) the procedure of expulsion, suspension or disciplining of a derivatives broker who contravenes the clearing and settlement rules of the derivatives exchange. Section 44(4) In addition to the requirements of subregulations (1) and (2), the rules of a derivatives exchange and its clearing house shall also include default provisions, which shall provide for the procedure which a derivatives exchange may undertake in instituting default proceedings or taking any other action against a derivatives broker who has failed, appears to be unable, or is likely to become unable to meet its obligations for all unsettled or open market contracts to which the derivatives broker is a party. Section 44(5)(a) enable the settlement of all derivatives contracts; Section 44(5)(b) provide, for the purposes of paragraph (a), for payment by or to a derivatives broker, a sum of money in relation to each contract if that is required after taking into account all the rights and liabilities of the derivatives broker under or in respect of the derivatives contract concerned; Section 44(5)(c) enable all sums of money payable by or to the derivatives broker as determined in accordance with paragraph (b), to be aggregated or set-off so as to produce a net sum, if any, payable by or to the derivatives broker; Section 44(5)(d) provide that, if any net sum referred to in paragraph (c) is payable by the derivatives broker the net sum to be set-off against all property of the derivatives broker which is either subject to a market charge or which has been provided as a market collateral or set-off against the proceeds of the realization of such property so as to produce a further net sum, if any, payable by or to the derivatives broker; Section 44(5)(e) provide that, if any net sum referred to in paragraph (c) is payable to the derivatives broker, all property of the derivatives broker which is either subject to a market charge or which has been provided as a market collateral shall cease to be subject to the market charge but without prejudice to any other form of charge to which it may be subject or to be market collateral but without prejudice to its provision as any other form of collateral, as the case may be; and Section 44(5)(f) provide for the certification by the clearing house of any net sum referred to in r paragraph (c) payable to the derivatives broker, or of any further net sum referred to in paragraph (d) payable by or to the derivatives broker, as the case may be, or if there is no such sum, the certification by the clearing house of that fact. Section 44(6) Where a clearing house takes default proceedings against a defaulter, all subsequent action taken under the rules of the clearing house for settlement of market contracts to which the defaulter is a party, shall be treated as taken under the default proceedings. Section 44(7) The rules of a clearing house of a derivatives exchange shall apply to the employees of its derivatives brokers. Section 44(8) The derivatives brokers of a clearing house shall ensure that its employees comply with the rules of the clearing house.
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 45. Ranking of default proceedings of clearing house in insolvency

AI-assisted research summary: When property is subject to a market charge or provided as market collateral, a person seeking to enforce an interest or security may not start or continue execution, legal process, or levy distress against that property except with the clearing house's consent.

Section 45. Ranking of default proceedings of clearing house in insolvency Section 45(1) Where property is subject to a market charge or has been provided as a market collateral, no execution or other legal process for the enforcement of a judgment or an order may be commenced or continued, and no distress may be levied, against the property by a person seeking to enforce any interest in or security over the property, except with the consent of the clearing house concerned. Section 45(2) Where a person is not entitled, by virtue of this regulation, to enforce judgment or an order against any property, any injunction or other remedy granted with a view to facilitating the enforcement of any such judgment or order shall not extend to that property.
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 46. Derivatives broker to be party to certain transactions as principal

AI-assisted research summary: Derivatives brokers must be party to certain transactions as principal.

Section 46. Derivatives broker to be party to certain transactions as principal Section 46(1)(a) enters into any transaction, including a market contract with a clearing house of a derivatives exchange; and Section 46(1)(b) is likely to be a party to that transaction as an agent, Section 46(2)(a) two or more derivatives brokers enter into any transaction; and Section 46(2)(b) any such derivatives broker is likely to be a party to that transaction as agent,
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 47. Property deposited with a clearing house

AI-assisted research summary: No action, claim or demand (civil or criminal) may be brought against the derivatives exchange or its nominees in respect of rights, title or interest in property deposited with the clearing house, subject to regulation 44 and the exchange's clearing and settlement rules, and notwithstanding any other law.

Section 47. Property deposited with a clearing house Section 47(1) Subject to regulation 44, where a derivatives broker deposits any property with a clearing house as market collateral in accordance with the clearing and settlement rules of a derivatives exchange, then, notwithstanding any other law, no action, claim or demand, either civil or criminal, in respect of any right, title or interest in such property held or enjoyed by any person shall lie, or shall be commenced or allowed against the derivatives exchange or its nominees. Section 47(2) The operation of subregulation (1) shall be subject to any modifications and exclusions provided in the clearing and settlement rules of the derivatives exchange.
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CLEARING HOUSE OF A DERIVATIVES EXCHANGE - 48. Preservation of rights etc.

AI-assisted research summary: Preserves any right, title, interest, privilege, obligation or liability of a person.

Section 48. Preservation of rights etc. Section any right, title, interest, privilege, obligation or liability of a person;

Part IV

APPROVAL OF DERIVATIVES CONTRACT

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APPROVAL OF DERIVATIVES CONTRACT - 49. Transactions that may be conducted on a derivatives exchange

AI-assisted research summary: The Authority must, by notice, prescribe which transactions may be conducted on a derivatives market.

Section 49. Transactions that may be conducted on a derivatives exchange Section 49(1) The Authority shall, by notice, prescribe transactions which may be conducted on a derivatives market. Section 49(2) The transactions prescribed under subregulation (1) shall only be dealings in derivatives contracts or other financial products.
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APPROVAL OF DERIVATIVES CONTRACT - 50. Approval of derivatives contracts

AI-assisted research summary: Derivatives contracts must be approved by the Authority before they can be listed; exchanges must apply and the Authority may approve if application meets specified requirements and may direct corrections, amend or revoke; refusal or revocation requires giving the exchange an opportunity to be heard.

Section 50. Approval of derivatives contracts Section 50(1) Every derivatives contract shall be approved by the Authority prior to becoming eligible for listing on a derivatives exchange. Section 50(2) A derivatives exchange shall submit an application for approval of a derivatives contract to the Authority. Section 50(3)(a) size of the contract; Section 50(3)(b) tick size; Section 50(3)(c) duration of the contract; Section 50(3)(d) mode of final settlement; Section 50(3)(e) grade and quality of the underlying asset, if applicable; Section 50(3)(f) position limits at the derivatives broker and client levels; and Section 50(3)(g) any other information which the Authority may consider necessary. Section 50(4) Upon receipt of an application under subregulation (2), the Authority may, if it is satisfied that the application fulfills the requirements under subregulation (3), approve the derivatives contract for listing on the derivatives exchange. Section 50(5)(a) direct the derivatives exchange to correct the deficiency; Section 50(5)(b) direct the derivatives exchange to comply with the prescribed condition or requirement within the specified time; Section 50(5)(c) amend the specification of any derivatives contract; or Section 50(5)(d) revoke the derivatives contract. Section 50(6) An application submitted under subregulation (2) shall not be refused and an approval of a derivatives contract shall not be revoked unless the derivatives exchange has been given the opportunity of being heard.

Part IX

GENERAL PROVISIONS

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GENERAL PROVISIONS - 79. Repeal of L.N. 108/2013

AI-assisted research summary: Repeals the Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations (L.N. 108/2013).

Section 79. Repeal of L.N. 108/2013 Section The Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations (L.N. 108/2013) are repealed.
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GENERAL PROVISIONS - 80. Savings

AI-assisted research summary: An exchange previously licensed under the cited repealed Regulations shall continue to operate as if licensed under, and must comply with, these Regulations.

Section 80. Savings Section An exchange which was licensed under the Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations (L.N. 108/2013) and repealed by these Regulations shall continue to operate as if it is licensed under these Regulations and shall be required to comply with these Regulations.

Part V

LICENSING OF DERIVATIVES BROKERS

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LICENSING OF DERIVATIVES BROKERS - 51. Obligation to seek a licence

AI-assisted research summary: A person must not carry on or purport to carry on business as a derivatives broker unless licensed as a derivatives broker by the Authority.

Section 51. Obligation to seek a licence Section A person shall not carry on or purport to carry on business as a derivatives broker unless that person is licensed as a derivatives broker by the Authority.
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LICENSING OF DERIVATIVES BROKERS - 52. Licensing of a derivatives broker

AI-assisted research summary: A person who intends to operate as a derivatives broker must submit an application for a licence to the Authority in Form 2 as set out in the Fourth Schedule.

Section 52. Licensing of a derivatives broker Section 52(1) A person who intends to operate as a derivatives broker shall submit an application for a licence to operate as such to the Authority in Form 2 as set out in the Fourth Schedule. Section 52(2)(a) the prescribed fees as set out in the Fifth Schedule; Section 52(2)(b) the documents, information and declarations specified under regulation 52; and Section 52(2)(c) a letter from the derivatives exchange stating that the applicant meets all the relevant requirements of that derivatives exchange and that the derivatives exchange will admit the applicant if licensed by the Authority.
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LICENSING OF DERIVATIVES BROKERS - 53. Consideration for grant of licence

AI-assisted research summary: Applicants must provide an undertaking to allocate a prescribed percentage of net capital to support derivatives exchange activities; shareholders, directors and key personnel of the applicant must not have defaulted on clearing house dues.

Section 53. Consideration for grant of licence Section 53(1)(a) be a company limited by shares; Section 53(1)(b) have a chief executive who is a fit and proper person as described under section 24A of the Act and who has experience of not less than five years in the business of buying, selling or dealing in commodities, commodity derivatives contracts or other securities; Section 53(1)(c) have the necessary infrastructure including office space, equipment and trained staff to effectively discharge its activities; Section 53(1)(d) have as its directors and key personnel, persons who are fit and proper as described under section 24A of the Act; and Section 53(1)(e) have a minimum net capital and minimum net worth as determined by the derivatives exchange and approved by the Authority from time to time. Section 53(2) Where an applicant is a market intermediary of another securities exchange in addition to the derivatives exchange, the applicant shall provide an undertaking that it shall allocate a prescribed percentage of the net capital balance to support its activities at the derivatives exchange. Section 53(3)(a) not be less than the minimum required net capital balance at the derivatives exchange; Section 53(3)(b) be kept segregated; and Section 53(3)(c) be maintained at all times. Section 53(4) A shareholder, a director and key personnel of the applicant shall be persons who have not defaulted in payment of dues at a clearing house.
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LICENSING OF DERIVATIVES BROKERS - 54. Furnishing of information, clarifications, etc.

AI-assisted research summary: The Authority may require applicants to provide further information about previous dealings; applicants or their key personnel must appear before the Authority if required to make personal representations.

Section 54. Furnishing of information, clarifications, etc. Section 54(1) The Authority may, in considering an application made under regulation 51, require an applicant to furnish such further information regarding any previous dealings in securities, commodities and any other related matter as the Authority may consider necessary. Section 54(2) An applicant or its key personnel shall, if required by the Authority, appear before the Authority to make personal representations.
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LICENSING OF DERIVATIVES BROKERS - 55. Grant of licence

AI-assisted research summary: The Authority must grant a derivatives broker licence within thirty days of application if it is satisfied the applicant is eligible; it must inform the derivatives exchange and the applicant of the grant; it must not refuse without giving the applicant a hearing; if refusal follows a hearing the Authority must notify applicant and exchange within fourteen days stating grounds; an aggrieved applicant may appeal to the Capital Markets Tribunal within fifteen days of receipt of the decision.

Section 55. Grant of licence Section 55(1) The Authority, shall, within thirty days from the date of application, grant a licence to an applicant, if the Authority is satisfied that the applicant is eligible to be licensed as a derivatives broker. Section 55(2) The Authority shall duly inform the derivatives exchange and the applicant of the grant of a licence under subregulation (1). Section 55(3) A licence granted under subregulation (1) shall remain valid unless suspended or revoked. Section 55(4) The, Authority shall not refuse to grant a licence without first giving the applicant an opportunity of being heard. Section 55(5) Where the Authority, after hearing the applicant, refuses to grant the applicant a licence, the Authority shall communicate the decision to the applicant and the derivatives exchange within fourteen days of the hearing, stating the grounds for refusal. Section 55(6) An applicant aggrieved by the decision of the Authority under subregulation (5) may appeal against such refusal to the Capital Markets Tribunal within fifteen days of receipt of the decision of the Authority.
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LICENSING OF DERIVATIVES BROKERS - 56. Annual licence fees

AI-assisted research summary: A derivatives broker must pay an annual licence fee as set out in the Fifth Schedule.

Section 56. Annual licence fees Section A derivatives broker shall pay an annual licence fee as set out in the Fifth Schedule.
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LICENSING OF DERIVATIVES BROKERS - 57. Suspension of a licence

AI-assisted research summary: Section 57 lists grounds on which the Authority may suspend a derivatives broker's licence and requires the Authority to give the broker an opportunity to be heard before issuing suspension.

Section 57. Suspension of a licence Section 57(1)(a) a derivatives broker has failed to comply with any conditions subject to which the licence was granted under these Regulations; Section 57(1)(b) a derivatives broker has failed to comply with the Act, these Regulations or any directions made or given thereunder; Section 57(1)(c) a derivatives broker has contravened the rules of the derivatives exchange; Section 57(1)(d) a derivatives broker has failed to adhere to any requirement of the code of conduct as laid down under these Regulations; Section 57(1)(e) a derivatives broker has failed to comply with the directives of the Authority in respect of business conduct, dealings with clients and financial prudence; Section 57(1)(f) a derivatives broker has failed to furnish any information relating to the transactions of the derivatives broker in derivatives contracts as may be required by the Authority; Section 57(1)(g) a derivatives broker has failed to submit periodical returns as required by the Authority; Section 57(1)(h) a derivatives broker has furnished the Authority or the derivatives exchange with wrong or false information; Section 57(1)(i) a derivatives broker has failed to settle an investor complaint where such complaint has been adjudicated by a securities exchange, a derivatives exchange, a committee of an exchange or the Authority; Section 57(1)(j) a derivatives broker has not co-operated in any enquiry or inspection conducted by the Authority; Section 57(1)(k) a derivatives broker has indulged in market manipulation, price rigging or cornering activities at a derivatives exchange; Section 57(1)(l) a derivatives broker has experienced or is experiencing financial position deterioration to such an extent that the Authority is of the opinion that the continuance of the derivatives broker in the business of dealing in derivatives contracts is no longer in the interest of investors; Section 57(1)(m) a derivatives broker has been suspended by a securities exchange or a derivatives exchange; or Section 57(1)(n) a derivatives broker has failed to pay the annual fees; or Section 57(1)(o) it is necessary in the public interest to do so, Section 57(2) The Authority shall, before issuing an order of suspension or other administrative action under subregulation (1), give a derivatives broker an opportunity to be heard.
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LICENSING OF DERIVATIVES BROKERS - 58. Revocation of a licence

AI-assisted research summary: Before revoking a derivatives broker's licence under subregulation (1), the Authority must give the derivatives broker an opportunity to be heard.

Section 58. Revocation of a licence Section 58(1)(a) the reasons for suspension of a licence under regulation 56 continue during the period of such suspension; Section 58(1)(b) is engaging or has engaged in insider trading, market manipulation or any other unfair practice or market abuse; Section 58(1)(b)(i) is engaging or has engaged in insider trading, market manipulation or any other unfair practice or market abuse; Section 58(1)(b)(ii) has been found guilty of fraud or convicted of a criminal offence; Section 58(1)(b)(iii) has not complied with a directive of the Authority; or Section 58(1)(c) the membership of that derivatives broker has been cancelled by a derivatives exchange or another securities exchange; or Section 58(1)(d) it is necessary for the protection of investors. Section 58(2) The Authority shall, before issuing an order of revocation under subregulation (1), give a derivatives broker an opportunity to be heard.
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LICENSING OF DERIVATIVES BROKERS - 59. Automatic revocation of a licence

AI-assisted research summary: A licence is automatically revoked when a person ceases to be a trading member of a derivatives exchange.

Section 59. Automatic revocation of a licence Section ceases to be a trading member of a derivatives exchange;
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LICENSING OF DERIVATIVES BROKERS - 60. Appeal against suspension or revocation of licence

AI-assisted research summary: An aggrieved derivatives broker may appeal the Authority's suspension or revocation of its licence to the Capital Markets Tribunal within fifteen days of being notified.

Section 60. Appeal against suspension or revocation of licence Section A derivatives broker aggrieved by the decision of the Authority to suspend or revoke its licence may, within fifteen days of being notified of the decision of the Authority, appeal to the Capital Markets Tribunal.
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LICENSING OF DERIVATIVES BROKERS - 61. Derivatives broker to clear liabilities

AI-assisted research summary: A derivatives broker must clear all its outstanding obligations even if its licence is suspended or revoked, up to the date it last operated as a derivatives broker.

Section 61. Derivatives broker to clear liabilities Section Despite a suspension or revocation of a licence under regulations 56, 57 or 58, a derivatives broker shall be responsible for clearing all its outstanding obligations up to the date on which that derivatives broker has been operating as such.
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LICENSING OF DERIVATIVES BROKERS - 62. Continuing obligations

AI-assisted research summary: Section 62 concerns continuing obligations regarding the net capital balance.

Section 62. Continuing obligations Section the net capital balance;

Part VI

CONDUCT OF BUSINESS OF DERIVATIVES

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CONDUCT OF BUSINESS OF DERIVATIVES - 63. Standards of conduct

AI-assisted research summary: The Capital Markets (Corporate Governance) (Market Intermediaries) Regulations and the Capital Markets (Conduct of Business) (Market Intermediaries) Regulations shall apply to derivatives brokers.

Section 63. Standards of conduct Section The provision of the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations (sub. leg) and the Capital Markets (Conduct of Business) (Market Intermediaries) Regulations (sub. leg) shall apply to derivatives brokers.
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CONDUCT OF BUSINESS OF DERIVATIVES - 64. Systems audit

AI-assisted research summary: A derivatives broker must undergo a periodic system audit in accordance with directions issued by the Authority.

Section 64. Systems audit Section A derivatives broker shall undergo a periodic system audit in accordance with the directions issued by the Authority from time from time.
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CONDUCT OF BUSINESS OF DERIVATIVES - 65. Risk disclosure statements

AI-assisted research summary: A separate written risk disclosure statement must be furnished to the client in a form and containing information as prescribed by the derivatives exchange and approved by the Authority.

Section 65. Risk disclosure statements Section furnished the client with a separate written risk disclosure statement which shall be in such form and contain such information as may be prescribed by the derivatives exchange and approved by the Authority; and
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CONDUCT OF BUSINESS OF DERIVATIVES - 66. Segregation of clients' funds

AI-assisted research summary: Derivatives brokers must segregate clients' funds by using a Client Group Account at the exchange's designated clearing bank, route all client deposits and withdrawals through that account, immediately deposit client payments for onward credit to individual client accounts at the exchange clearing house, maintain transaction records with banks, and must not accept or pay cash to clients.

Section 66. Segregation of clients' funds Section 66(1)(a) Its own funds and clients' funds; and Section 66(1)(b) individual clients' funds. Section 66(2) A derivatives broker shall establish a Client Group Account with the designated clearing bank of the derivatives exchange of which that derivatives broker is a derivatives member. Section 66(3) A derivatives broker shall ensure that all deposits and withdrawals on behalf of clients are only made through the Client Group Account established under subregulation (2). Section 66(4)(a) a cheque; Section 66(4)(b) a bank draft; or Section 66(4)(c) online bank transfer or via mobile banking transfer from a client designated account. Section 66(5) A derivatives broker shall immediately deposit any deposits under subregulation (4) in the Client Group Account maintained by the derivatives broker with the derivatives exchange designated clearing bank for onward transfer and credit to each individual clients' account at the clearing house of the derivatives exchange. Section 66(6) Any withdrawals requested by a client shall be processed by transferring funds from the individual clients' account maintained at the clearinghouse of the derivatives exchange to the Client Group Account maintained by the derivatives broker at the designated clearing bank of a derivatives exchange. Section 66(7) A withdrawal under subregulation (6) shall be settled either by a cheque drawn on the Client Group Account of the derivatives broker, by online bank transfer or by mobile banking transfer, to a designated client account, from the same account maintained at the designated clearing bank of a derivatives exchange. Section 66(8)(a) the Client Group Account maintained at the designated clearing bank of a derivatives exchange; Section 66(8)(b) the Client Group Account at the clearing house of a derivatives exchange; and Section 66(8)(c) individual clients’ account maintained at the clearing house of a derivatives exchange. Section 66(9) A derivatives broker shall not accept cash from or pay cash to a client for a transaction under these Regulations. Section 66(10) A derivatives broker shall maintain a record of transactions with the banks including clients deposits and withdrawals from the client group account maintained with the derivatives exchange designated clearing bank.

Part VII

INSPECTION

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INSPECTION - 67. The right of the Authority to inspect

AI-assisted research summary: The Authority has the right to inspect books of accounts and other records to establish that they are being maintained in the manner required.

Section 67. The right of the Authority to inspect Section establish that the books of accounts and other records are being maintained in the manner required;
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INSPECTION - 68. Procedure for inspection

AI-assisted research summary: Before inspecting under regulation 66, the Authority must give a derivatives broker reasonable notice; however the Authority may direct a no-notice inspection in writing if satisfied it is in the investors' or public interest. Inspecting officers have the power to inspect as directed and the derivatives broker must discharge its obligations under regulation 68.

Section 68. Procedure for inspection Section 68(1) The Authority shall, before undertaking an inspection under regulation 66, give the derivatives broker a reasonable notice of the intention to undertake an inspection. Section 68(2) Notwithstanding subregulation (1), the Authority may direct, in writing, that an inspection of a derivatives broker be carried out without notice to the derivatives broker, if the Authority is satisfied that it is in the interest of the investors or in the public interest that no such notice should be given. Section 68(3) The inspecting officers appointed under regulation 66, shall have the power to undertake the inspection of the derivatives broker as directed by the Authority and that derivatives broker is bound to discharge its obligation as provided under regulation 68.
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INSPECTION - 69. Obligations of derivatives broker who is under inspection

AI-assisted research summary: Inspecting officers may require persons connected to a derivatives broker under inspection to produce documents and information; they are entitled to examine or record statements; directors, officers or employees must give reasonable assistance to inspecting officers.

Section 69. Obligations of derivatives broker who is under inspection Section 69(1) An inspecting officer may require a shareholder, director, officer or an employee of the derivatives broker under inspection to produce, such books, accounts and other documents in his or her custody or control and furnish the inspecting officer with the statements and information relating to the transactions in derivatives market within such time as the inspecting officer may require. Section 69(2)(a) allow the inspecting officer reasonable access to the premises occupied by the derivatives broker or by any other person acting on behalf of the derivatives broker; Section 69(2)(b) extend reasonable facilities to the inspecting officer to examine any books, records, documents and computer data in the possession of the derivatives broker or any other person; and Section 69(2)(c) provide copies of documents or other materials which, in the opinion of the inspecting officer, are relevant. Section 69(3) An inspecting officer shall, in the course of inspection, be entitled to examine or record statements of any shareholder, director, partner, proprietor or employee of a derivatives broker under inspection. Section 69(4) A director, an officer or an employee of the derivatives broker under investigation shall give to the inspecting officer any assistance in connection with the inspection which the derivatives broker may reasonably be expected to give.
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INSPECTION - 70. Action on inspection report

AI-assisted research summary: The Authority may, after considering an inspection report, take actions provided for under the Act.

Section 70. Action on inspection report Section The Authority may, after considering an inspection report, take such action as provided for under the Act.
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INSPECTION - 71. Appointment of an auditor

AI-assisted research summary: The Authority may appoint a qualified auditor (at the derivatives broker's cost) to audit or investigate a derivatives broker; persons of the broker must produce documents and provide assistance and auditors are entitled to take statements in the audit or investigation.

Section 71. Appointment of an auditor Section 71(1) The Authority may, in the interest of investors, appoint a qualified auditor to audit the books of accounts or to investigate any affairs of a derivatives broker at the cost of that derivatives broker. Section 71(2) Any shareholder, director, officer or employee of the derivatives broker which is being audited or investigated shall produce, to the auditor, such books, accounts and other documents in his or her custody or control and furnish the auditor with the statements and information relating to the transactions in derivatives market within such time as the auditor may require. Section 71(3)(a) allow the auditor reasonable access to the premises occupied by the derivatives broker or by any other person acting on behalf of the derivatives broker; Section 71(3)(b) extend reasonable facilities to the auditor to examine any books, records, documents and computer data in the possession of the derivatives broker or any other person; and Section 71(3)(c) provide copies of documents or other materials which, in the opinion of the auditor, are relevant. Section 71(4) An auditor shall, in the course of an audit or investigation, be entitled to examine or record statements of any member, director, partner, proprietor or employee of a derivatives broker under audit or investigation. Section 71(5) A director, an officer or an employee of the derivatives broker under audit or investigation shall give the auditor all assistance in connection with the audit or investigation which the derivatives broker may reasonably be expected to give.

Part VIII

MARKET OFFENCES

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MARKET OFFENCES - 72. False trading

AI-assisted research summary: A person must not create or cause a false or misleading appearance of trading activity in a derivatives market; doing so is an offence.

Section 72. False trading Section 72(1) A person who creates, causes to be created, or does anything that is calculated to create a false or a misleading appearance of trading activity in a derivatives market, commits an offense. Section 72(2) Without limiting the generality of subregulation (1), a false or a misleading appearance of trading activity is created if a person executes or holds himself or herself out as having executed an order for the purchase or sale in a derivatives market, without having effected a bona fide purchase or sale in accordance with the regulations, rules and practices of the derivatives market.
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MARKET OFFENCES - 73. Bucketing

AI-assisted research summary: A person commits an offence if they directly or indirectly take the opposite side of a client's order into a derivatives broker's own account or an account in which the broker has an interest without open and competitive execution on the derivatives exchange.

Section 73. Bucketing Section A person who directly or indirectly takes the opposite side of a client's order into a derivatives broker's own account or into an account in which a derivatives broker has an interest, without open and competitive execution of the order on the derivatives exchange, commits an offense.
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MARKET OFFENCES - 74. Manipulation of price of a Derivatives contract and cornering

AI-assisted research summary: Section 74 addresses manipulation of the price of a derivatives contract and cornering of a derivatives contract that may be traded on a derivatives market.

Section 74. Manipulation of price of a Derivatives contract and cornering Section a derivatives contract that may be traded on a derivatives market;
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MARKET OFFENCES - 75. Employment of fraudulent or deceptive devices, etc

AI-assisted research summary: Makes it an offence where a person employs any device, scheme or artifice to defraud another person.

Section 75. Employment of fraudulent or deceptive devices, etc Section employs any device, scheme or artifice to defraud that person;
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MARKET OFFENCES - 76. Fraudulently inducing trading in derivatives contracts

AI-assisted research summary: Making or publishing any statement, promise or forecast that is false, misleading or deceptive is prohibited.

Section 76. Fraudulently inducing trading in derivatives contracts Section making or publishing any statement, promise or forecast that is false, misleading or deceptive;
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MARKET OFFENCES - 77. Trading of derivatives contracts off-exchange is illegal

AI-assisted research summary: Derivatives brokers must ensure that the derivatives business they conduct in relation to derivatives contracts is concluded on or through a derivatives exchange.

Section 77. Trading of derivatives contracts off-exchange is illegal Section A derivatives broker shall ensure that any derivatives business that the derivatives broker conducts in relation to derivatives contracts shall be concluded on or through the facilities of a derivatives exchange as may be provided by the rules of the derivatives exchange.
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MARKET OFFENCES - 78. Penalty

AI-assisted research summary: If a person is found guilty of an offence under this Part, they must be liable to the penalty specified in section 34A of the Act and may also face an action for damages for the loss occasioned.

Section 78. Penalty Section A person who is found guilty of an offence under this Part shall be liable to the penalty as specified under section 34A of the Act in addition to any action for damages in respect of the loss occasioned.

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