The Capital Markets Authority Rules

Section 1. Citation Section These Rules may be cited as the Capital Markets Authority Rules.

Section 2. Conditions for approval Section for the admission or non-admission of members, including the required standards of competence and professionalism;

Section 3. Books and records Section its members;

Section 4. Annual Report Section changes in its rules and by-laws, if any;

Section 5. Publication of accounts of listed companies Section 5(1) A securities exchange shall, make available to the Authority and to the investors at the end of each year, details of the published accounts of companies that are listed on such securities exchange, and the details of securities transacted and the prices (i.e. high, low and mid-market), at which such securities have been transacted during the year. Section 5(2) Communication to investors shall be by way of publication in a daily newspaper published and circulated in Kenya.

Section 6. Periodic reports Section 6(1)(a) the official prices for the securities enlisted thereon; Section 6(1)(b) the number of shares delivered to the clearing facility; Section 6(1)(c) the number of securities listed and delisted during the preceding calendar quarters; Section 6(1)(d) a signed statement itemizing all outstanding positions beyond settlement date for each member; and Section 6(1)(e) any other matter that may be specified by the Authority. Section 6(2) A securities exchange shall furnish the Authority at least quarterly, with a report of all securities transfers for each day, including each private transaction which has been effected through its members, along with their values, and in the case of private transactions, the names of the transferor and the transferee. Section 6(3) A securities exchange shall furnish the Authority with quarterly report on the financial standing of each member, broker and dealer within four weeks of the close of each quarter and the report shall include the position of margin accounts and net capital provisions as prescribed by the Authority, with respect to each member.

Section 7. Other reports by exchange Section there is a delay in opening the exchange;

Section 8. Publicity on transactions of securities Section 8(1) A securities exchange shall issue to the Authority and the public media a daily list of transactions of securities made through its trading facilities, stating the security, the price and number of units transacted. Section 8(2) A securities exchange shall issue to the Authority and the public media, at least once a month and in a form acceptable to the Authority, a report on the securities transacted and price movements for each security including low, high and average prices and the magnitudes of transactions in the security.

Section 9. Securities exchange rules and guidelines to be approved Section 9(1) Every securities exchange shall administer rules and guidelines for the listing and maintenance of listing of securities and the rules and guidelines shall be approved by the Authority prior to their publication. Section 9(2) The Authority may, in consultation with a securities exchange, require the securities exchange to adopt any rule or guideline which it deems necessary. Section 9(3)(a) enabling the listing of securities by the securities exchange following application by an issuer to the securities exchange, through procedure acceptable to the Authority; Section 9(3)(b) enabling the delisting or suspension of securities by the securities exchange through procedure acceptable to the Authority; Section 9(3)(c) for ensuring that listed companies have a public share-holdings sufficient to make the companies responsive to public investors, in keeping with the development of the stock market; Section 9(3)(d) for ensuring that listed companies have as broad a base of public shareholders as possible in keeping with company capital size and the development of the stock market; Section 9(3)(e) for encouragin...

Section 10. Books of account Section journals (or other records of original entry) containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all debits and credits; and the records shall show the account for which each such transaction was effected, the name and amount of securities the unit and aggregate purchase or sale price (if any) the trade date, and the name or other designation of the person from whom purchased or received or to whom sold or delivered;

Section 11. Records to be maintained Section 11(1)(a) the customer's name, date of birth or registration, address, nationality or citizenship, signature of the customer, the representative regularly handling the account and a designated supervisor; Section 11(1)(b) if the broker or dealer, or any of its representatives has made any recommendations to the customer to purchase, sell or exchange any security, the record of such customer shall also state the customer's occupation, marital status where applicable, investment objectives, other information concerning the customer's financial situation and needs which the broker or dealer or the representative considered in making the recommendation, and the signature of the broker or dealer or representative who made the recommendation to the customer. Section 11(2) If, after the effective date of these Rules a broker or dealer or any representative of such broker or dealer, has made any recommendation, to a person who became a customer prior to the effective date of these Rules, the broker or dealer shall make and keep current a record for such customer which shall contain the information required by paragraph (1). Section 11(3) Any item...

Section 12. Submission of annual accounts Deposit of customers funds Section Every broker or dealer shall submit to the Authority and to the securities exchange of which the broker or dealer is a member audited annual accounts within three months following the closure of the broker's or dealer's financial year provided that the Authority may require such other form of financial statement as the Authority may specify.

Section 13. Deposit of customers' funds Section deposit customers' funds in one or more bank accounts which account shall contain only those funds;

Section 23. Meeting of Investor Compensation Committee Section The Investor Compensation Committee meetings shall be convened by the chairman whenever the business of the Fund so requires and the Authority shall determine the procedure for such meetings.

Section 24. Statement of accounts Section 24(1) The Investor Compensation Committee shall keep proper accounts and records and in every financial year, prepare a statement of accounts showing the state of affairs, income and expenditure. Section 24(2) The accounts shall include premium paid and any contribution by any person and investments by the Investor Compensation Fund. Section 24(3) The statement of account shall be audited by an auditor who is qualified under section 161 of the Companies Act (Cap. 486) and appointed by the Authority. Section 24(4) The Authority shall include information relative to the Investor Compensation Fund in its annual report to the Cabinet Secretary.

Section 25. Compensation of investors Section 25(1)(a) from the bank guarantee furnished by such license person to the securities exchange of which such licensed person is a member; or Section 25(1)(b) from the compensation fund of the securities exchange of which such licensed person is a member; or Section 25(1)(c) in legal proceedings including bankruptcy or liquidation proceedings against such licensed person, Section 25(2) An application by any investor for compensation shall be made to the Authority within six months of obtaining a final order in bankruptcy or liquidation proceedings against such licensed person. Section 25(3) The Investor Compensation Committee shall, after examination of the evidence produced in support of a claim, make a recommendation to the Authority with respect to whether to allow or disallow such claim and, if the recommendation is to allow the claim, an assessment of the amount payable. Section 25(4) The Authority shall give notice of its decision to the investor in writing. Section 25(5) The net loss to an investor shall be subject to a maximum of one hundred thousand shillings provided that the Cabinet Secretary may, by order, on the recommendation...

Section 26. Power of Authority to require information Section furnish to the Authority; or

Section 14. Financial limits for brokers and dealers Section 14(1)(a) aggregate indebtedness exceeds one thousand and two hundred per cent of the broker's or dealer's net capital; or Section 14(1)(b) net capital falls below one hundred thousand shillings for two consecutive months. Section 14(2)(a) grant unsecured advances or loans to any of its directors or associates in excess of twenty thousand shillings; nor Section 14(2)(b) allow deficits in the account of a single client to exceed thirty per cent of its monthly net capital; nor Section 14(2)(c) allow its exposure to a single listed security to exceed three hundred per cent of the broker's or dealer's monthly net capital; nor Section 14(2)(d) allow the book value of the listed securities it carries on its own account to exceed one hundred and fifty per cent of its monthly net capital.

Section 15. Margin trading Section except in the case of securities approved for margin trading by the securities exchange of which the broker or dealer is a member with the concurrence of the Authority; or

Section 16. Interpretation Section deferred taxes;

Section 17. Rules relating of investment advisers Section 17(1)(a) recommend to a client to whom investment supervisory management or consulting services are provided, the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the investment adviser after reasonable examination of the client's financial records; Section 17(1)(b) place an order to purchase or sell a security for the account of a client without written authority to do so; Section 17(1)(c) place an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party authorization from the client; Section 17(1)(d) exercise any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to...

Section 18. Books and records to be kept by investment advisers Section 18(1)(a) a journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger; Section 18(1)(b) general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; Section 18(1)(c) show the terms and conditions of the order, instruction, modification or cancellation; Section 18(1)(c)(i) show the terms and conditions of the order, instruction, modification or cancellation; Section 18(1)(c)(ii) identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed such order; and Section 18(1)(c)(iii) show the account for which entered, the date of entry, and the bank, broker or dealer by or through whom executed where appropriate; Section 18(1)(c)(iv) show orders entered pursuant to the exercise of discretionary power; Section 18(1)(d) all cheque books, bank statements, cancelled cheques and cash reconciliations of the investment adviser; Section 18(1)(e) all bills or statements (or copies thereof), p...

Section 19. Supervision of investment adviser's representatives Section 19(1) Every investment adviser's representative employed by an investment adviser shall be subject to the supervision of a supervisor designated by the investment adviser who may be the investment adviser in the case of a sole proprietor, or a partner, officer, office manager or any qualified investment adviser representative in the case of entities other than sole proprietorships. Section 19(2)(a) the review and written approval by the designated supervisor of the opening of each new client account; Section 19(2)(b) the frequent examination of all client accounts to detect and prevent irregularities or abuses; Section 19(2)(c) the prompt review and written approval by a designated supervisor of all advisory transactions by investment adviser representatives and of all correspondence pertaining to the solicitation or execution of advisory transactions by investment adviser representatives; and Section 19(2)(d) the prompt review and written approval of the handling of all client complaints. Section 19(3)(a) supervise and periodically review the activities of the supervisors; and Section 19(3)(b) periodically ins...

Section 20. Interpretation Section In these Rules, "close relation" means a spouse, a parent, sibling, child, in-laws, a grandchild, and a spouse of grandchild.

Section 21. Prohibition on transfer of listed securities Section 21(1)(a) a sale or gift to a close relation, charity or approved organization for a receipt of donations; Section 21(1)(b) the settlement of a will or estate of a deceased person; Section 21(1)(c) the operation of an employee share option scheme or employee share ownership scheme of a listed company with respect to its own shares, provided such a scheme has been approved by the Authority; Section 21(1)(d) restructuring or mergers or acquisitions in a scheme which has been accepted by the Authority; Section 21(1)(e) setting off the value of listed securities that are pledged against a loan from a commercial bank or other licensed lending institution, in settlement of such loan at the current established market value of such listed securities by mutual agreement between such lending institution and such borrower, and certified by the securities exchange as being a fair market price for such security; or Section 21(1)(f) any other private transaction of listed securities of an exceptional nature that the securities exchange and the Authority consider to be proper and acceptable. Section 21(2) Where a private transaction...

Section 22. Rules relating to public communication Section 22(1) All advertisements, sales literature and other communication with the public, by persons licensed under the Act and financial journalists shall be factual and any statements made shall be for the purpose of assisting in the evaluation of a particular security, type of securities, promoting the industry, service offered or the desirability of investing in securities in general. Section 22(2) No material fact or qualification may be omitted if such omission would cause the advertisement or sales literature to be misleading in the light of the context of other information presented. Section 22(3)(a) he makes a market in the securities recommended; and Section 22(3)(b) he or an associated person owns more than a nominal amount of such securities. Section 22(4) Any offer of a report, analysis or other service without any charge must be provided as such without any condition or obligation other than what is clearly described in the offer. Section 22(5) No claim with respect to research or analysis facilities or capacity may be made beyond those actually possessed by the person making the claim. Section 22(6) All statements...

Section 27. Meeting of Shareholders Complaints Committee Section The meeting of the Shareholders Complaints Committee shall be convened by the chairman at least once every three months or whenever its business so requires and the Authority shall prescribe the procedure for its meetings.

Section 28. Power of Shareholders Complaints Committee Section 28(1) The Shareholders Complaints Committee shall on receipt of a written complaint from any shareholder of a listed company, examine the documents and other evidence produced, if any, in support of such complaint, and determine whether the subject of the complaint has violated any provisions of the Act or any rule or regulation or any by-law, rule or regulations of the securities exchange; and no final determination of violation shall be made without affording the subject of the complaint an opportunity of being heard. Section 28(2) Where the Shareholders Complaints Committee determines that a person under the Authority's jurisdiction has violated any provision of the Act, any rule or regulation or any securities exchange by-law, rule or regulation, the Shareholders Complaints Committee shall recommend to the Authority the nature of action to be taken against such person.