The Capital Markets (Coffee Exchange) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Coffee Exchange) Regulations.

Section 2. Interpretation Section the office or facilities of a coffee buyer or service provider; or

Section 3. Object, purpose and application Section to give effect to section 12 (1) of the Capital Markets Act (Cap. 485A);

Section 4. Regulation of coffee exchanges Section 4(1) A person shall not carry on the business of a coffee exchange unless he has applied for approval and licensed as a coffee exchange by the Authority in such manner as the Authority may provide. 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 coffee commodity 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 application 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; and Section 4(2)(f) any such additional documents as the Authority may require. Section 4(3)(a) be demutualized; Section 4(3)(b) have a minimum authorized, issued and paid up equity share capital to support initial infrastructural investments and three years' operating capital; Section 4(3)(c) satisfy requirements relating to ownership and governance st...

Section 5. Rules and obligations of a coffee exchange Section 5(1)(a) the clear demarcation of roles and responsibilities of the board, chief executive officer and the committees of the board; Section 5(1)(b) the appointment of directors and a fair representation of persons in the selection of members of the board and administration of its affairs including the professions relevant to coffee industry; Section 5(1)(c) the powers of the chief executive officer including in emergency situations; Section 5(1)(d) the qualifications for membership; Section 5(1)(e) the exclusion from membership of persons who do not meet the minimum criteria on integrity; Section 5(1)(f) the expulsion, suspension or disciplinary action against members for conduct inconsistent with just and equitable principles relating to trading in coffee, or for a contravention of the rules of the coffee exchange; Section 5(1)(g) specify qualifications for applicants for membership and provisions for accepting applicants as trading participants, imposing conduct and other requirements on them; Section 5(1)(h) provide for the governance of the conduct activity of participants, including their responsibility to act with i...

Section 6. Systems, staffing and record keeping Section provide and maintain a transparent and an efficient system for coffee trading;

Section 7. Obligation to seek a licence Section A person shall not carry on or purport to carry on business as a coffee broker unless that person is licensed by the Authority.

Section 8. Licensing of coffee brokers Section 8(1) A person who intends to operate as a coffee broker shall submit an application to the Authority for a licence to operate as such in Form B as set out in the First Schedule. Section 8(2)(a) the fees as set out in the Second Schedule; Section 8(2)(b) the documents, information and declarations specified under regulation 9; and Section 8(2)(c) a letter from the coffee exchange stating that the applicant meets all the relevant requirements of that exchange and that the exchange will admit the applicant if licensed by the Authority.

Section 9. Consideration for grant of licence Section be a company limited by shares;

Section 10. Furnishing of information, clarifications etc. Section 10(1) The Authority may, in considering an application made under regulation 8, 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 10(2) An applicant or its key personnel shall, if required by the Authority, appear before the Authority to make personal representations.

Section 11. Grant of licence Section 11(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 coffee broker. Section 11(2) The Authority shall duly inform the coffee exchange and the applicant of the grant of a licence under paragraph (1). Section 11(3) A licence granted under paragraph (1) shall remain valid until suspended or revoked. Section 11(4) The Authority shall not refuse to grant a licence without first giving the applicant an opportunity to be heard. Section 11(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 coffee exchange within fourteen days of the hearing, stating the grounds for refusal. Section 11(6) An applicant aggrieved by the decision of the Authority under paragraph (5) may appeal against such refusal to the Capital Markets Tribunal within fifteen days of receipt of the decision of the Authority.

Section 12. Annual licence fees Section A coffee broker shall pay an annual licence fee as set out in the Second Schedule.

Section 13. Suspension of a licence Section 13(1)(a) failed to comply with the Act, these Regulation or any directions made or given thereunder; Section 13(1)(b) failed to comply with any conditions subject to which the licence was granted under these Regulations; Section 13(1)(c) contravened the rules of the coffee exchange; Section 13(1)(d) failed to adhere to any requirement of the code of conduct laid down under these Regulations or other laws; Section 13(1)(e) failed to comply with the directives of the Authority in respect of business conduct, dealings with clients and financial prudence; Section 13(1)(f) failed to furnish any information relating to transactions of the coffee broker as may be required by the Authority; Section 13(1)(g) failed to submit periodical returns as required by the Authority; Section 13(1)(h) furnished the Authority or the exchange with wrong or false information; Section 13(1)(i) failed to settle an investor complaint where such complaint has been adjudicated by the exchange, a committee of the exchange, the Authority, the Capital Markets Tribunal, or a court of law; Section 13(1)(j) not co-operated in any enquiry or inspection conducted by the Auth...

Section 14. Revocation of a licence Section 14(1)(a) the reasons for suspension of a licence under regulation 13 continue during the period of such suspension; Section 14(1)(b) is engaging or has engaged in insider trading, market manipulation or any other unfair practice or market abuse; Section 14(1)(b)(i) is engaging or has engaged in insider trading, market manipulation or any other unfair practice or market abuse; Section 14(1)(b)(ii) has been found guilty of fraud or convicted of a criminal offence; Section 14(1)(b)(iii) has not complied with a directive of the Authority; Section 14(1)(c) the membership of that coffee broker has been cancelled by a coffee exchange or another securities exchange; or Section 14(1)(d) it is necessary for the protection of investors. Section 14(2) The Authority shall, before issuing an order of revocation under paragraph (1), give the coffee broker an opportunity to be heard.

Section 15. Automatic revocation of a licence Section ceases to be a trading member of a coffee exchange;

Section 16. Appeal against suspension or revocation of licence Section A coffee 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.

Section 17. Coffee broker to clear liabilities Section Despite a suspension or revocation of a licence, a coffee broker shall be responsible for clearing all its outstanding obligations up to the date on which that coffee broker has been operating as such.

Section 18. Continuing obligations Section the net capital balance;

Section 19. Central sample room Section 19(1) An exchange shall maintain a central sample room where samples of coffees to be offered for sale shall be held for distribution to buyers and roasters, and for display and archiving. Section 19(2) An exchange shall maintain an on-line portal in which information on coffee samples, quality and quantity of coffee on offer at the exchange will be accessible to intending buyers and interested persons.

Section 20. Sample deposit Section 20(1) Every buyer and roaster operating at an exchange shall be required to deposit such amount of money as determined by the exchange from time to time, as security for collecting offer samples at the exchange. Section 20(2) An exchange shall operate a coffee sample deposit account in a bank to be determined by the exchange in which all the sample deposits paid by buyers and roasters shall be deposited. Section 20(3)(a) sample fees netted off against samples collected by buyers and roasters; Section 20(3)(b) refunds to buyers and roasters ceasing to trade; and Section 20(3)(c) such interest earned or accruing from the sample deposit account. Section 20(4) A buyers or roaster who fail to pay the raised sample fees invoices within the due dates shall be suspended by the exchange from further collection of samples until such top ups are made. Section 20(5) Any refunds under paragraph (3)(b) shall be made without interest and net of any indebtedness by the buyer or roaster to the exchange. Section 20(6) No interest shall accrue to the benefit of the buyers or roasters in respect of the sample deposit.

Section 21. Offer sample Section An offer sample out of a lot of coffee presented for sale at an exchange shall be availed by the exchange to licensed buyers and roasters prior to the auction.

Section 22. Sample fee Section Every buyer or roaster shall within fourteen days of receipt of an invoice from an exchange pay a sample fee in respect of all the selling samples collected.

Section 23. Recovery of sample fee Section A buyer or roaster shall be given a fourteen days' notice to pay the outstanding sample fee and in default thereof, the fees shall be recovered from the sample deposit provided that all buyers and roasters shall maintain a minimum sample deposit balance of an amount to be determined by the exchange.

Section 24. Deduction and remission of sample fee Section An exchange shall deduct the sample fee invoiced from the forfeited sample deposit.

Section 25. Representative samples Section 25(1) A miller or an appointed broker shall deliver to the sample room, representative samples out of a lot of coffee being offered for sale at an exchange in such quantities as may be determined from time to time by the exchange. Section 25(2) The samples delivered by the millers or appointed brokers to the sample room shall be in accordance with the prevailing procedures as determined by the exchange from time to time.

Section 26. Reference sample Section 26(1) A reference sample of coffee shall be drawn from each lot and retained by an exchange for archival storage, for at least six months from the date of the sale for verification in case of a dispute: Section 26(2) Notwithstanding paragraph (1), where a dispute exceeds six months, an analysis of the sample shall be done by an expert and the quality report submitted to the exchange.

Section 27. Buying sample Section A buying sample of coffee shall be drawn from each lot of coffee purchased at the auction to be availed to the buyer or roaster who has purchased the lot for verification.

Section 28. Display sample Section A display sample shall be drawn for display in the sample room.

Section 29. Sample records Section receipt of coffee samples from the millers;

Section 30. Sale of sweepings to benefit growers Section Proceeds of sale for sweepings shall be remitted to growers through the direct settlement system provider on a prorated basis and shall have unique codes.

Section 31. Submission of sample returns Section 31(1) A miller or broker shall submit returns to an exchange and the Coffee Directorate on remission of monies received from samples and sweepings to the growers. Section 31(2) An exchange shall make weekly, monthly, biannual and annual auction returns to the Coffee Directorate. Section 31(3) An exchange shall prepare monthly reports on its performance and forward the same to the Coffee Directorate, buyers, roasters, millers, growers or growers' representatives and other interested parties.

Section 32. Resolution of disputes Section 32(1) In the event of a dispute arising out of coffee traded at an exchange and at the request by a complainant made to the exchange or the licensing authority, a random representative sample shall be redrawn from the lot or consignment in dispute for comparison with the reference sample. Section 32(2) The instructions to draw each sample shall be lodged at the exchange or the licensing authority which shall in turn instruct the licensed warehouseman to allow redrawing of samples by the aggrieved party and any interested party may witness the exercise. Section 32(3) In the event of a marked difference between the reference sample and the redrawn sample, additional samples shall be drawn from each bag in the lot and such individual sample together with the bag from which it has been drawn shall be referenced accordingly. Section 32(4) In the event that the dispute is unresolved by the exchange or the licensing authority, it shall be referred to the Capital Markets Tribunal established under the Capital Markets ( Cap. 485A ).

Section 33. Participation at the trading floor Section 33(1) Only licensed persons under these Regulations and other relevant laws shall participate on the trading floor of a coffee exchange. Section 33(2) The participants on the trading floor shall be required to pay to the exchange the applicable auction levy.

Section 34. Holding of auctions at the Exchange Section 34(1) The exchange shall, in consultation with millers or appointed brokers, as the case may be, set the volumes, lot sizes, dates and times for holding of coffee auctions. Section 34(2) Notwithstanding paragraph (1) provided that no suspension or cancellation of any auction shall be done without notification to the Authority.

Section 35. Sales catalogue Section 35(1) A sales catalogue shall be prepared by the grower miller or an appointed broker in accordance with the Third Schedule. Section 35(2) The exchange shall, in consultation with grower millers or appointed brokers as the case may be, determine the order of the sales catalogues for every sale and the exchange shall ensure that reasonable access to the auction is given to all persons licensed to trade under the Crops (Coffee) (General) Regulations. Section 35(3) A draft of the sales catalogue of each grower miller or broker shall be made available to buyers and roasters in accordance with the prevailing procedures of an exchange. Section 35(4) The final sales catalogue shall be made available to the exchange by the grower miller or broker in accordance with the prevailing procedures of an exchange.

Section 36. Disclosure of bulked coffee Section A miller shall disclose to the broker and the exchange, details of all bulked coffees and justify its basis.

Section 37. Conditions of auction sales Section Trading at the auction shall be in US Dollars or any other currency as may be determined by the exchange with the approval of the Authority.

Section 38. Process of trading at the exchange Section 38(1)(a) a miller shall deposit clean and graded coffee at a designated licensed warehouse, and where the clean coffee is a bulk, the respective coffee growers and the proportions of their coffee will be stated in writing; Section 38(1)(b) the coffee shall meet defined quality standards for commodity trading at the exchange at which the coffee will be offered for sale; Section 38(1)(c) the warehouseman shall issue a coffee warrant as set out in the Fourth Schedule or transferable warehouse receipts as the case may be, stating the quantity and quality of the coffee deposited and ensure traceability of the coffee; Section 38(1)(d) the warehouseman shall guarantee delivery of the coffee described in the coffee warrant or warehouse receipt as the case may be, and in the event of loss or failure of delivery, the warehouseman shall be liable; Section 38(1)(e) a coffee warrant or warehouse receipt as the case may be, issued shall be transferred to a new holder who is entitled to take delivery of the coffee upon presentation of the coffee warrant or warehouse receipt at the warehouse; Section 38(1)(f) when the owner of coffee deposited...

Section 39. Withdrawal of a lot Section 39(1) A miller or broker may, by written communication to an exchange, made at least three working days prior to the date of sale, withdraw a lot that was destined for sale and such written communication shall also state the reasons for withdrawal. Section 39(2) The exchange shall communicate the withdrawal in writing to all buyers and roasters at least two working days prior to the date of sale. Section 39(3) Samples of lots withdrawn shall not be compensated.

Section 40. Prompt date Section 40(1) The prompt date shall be specified on the sales catalogue and shall be not more than five working days following the date of the sale. Section 40(2) All coffees shall be paid for within the prompt date against an invoice presented by the miller.

Section 41. Direct settlement system Section 41(1) A direct settlement system shall be established by a licensed commercial bank competitively selected by an exchange subject to approval from the Authority and managed by that exchange. Section 41(2) The requirements for the operation of the direct settlement system shall be as set out in the Fifth Schedule. Section 41(3) The proceeds of the sale of coffee at the auction shall be remitted by a coffee buyer or roaster through a direct settlement system for onward settlement to the service providers and net payment to the grower. Section 41(4) A coffee grower or the grower's authorized representatives, shall after the commencement of these Regulations, supply through the coffee exchange all the necessary particulars of the grower to the appointed financial institution providing the direct settlement system to the grower, for purposes of initiating the settlement system. Section 41(5) The grower or the grower's authorized representatives shall also through the coffee exchange lodge with the financial institution providing the direct settlement system, any relevant contracts of service for which payment will be due from the grower, and...

Section 42. Settlement of bank charges Section 42(1) Any bank charges incurred by the buyer or roaster upon making payment shall be settled by the buyer or roaster, whilst those incurred by the miller upon receipt of coffee sale proceeds shall be deducted directly by the clearing house into which the proceeds have been paid. Section 42(2) A buyer or roaster who will not have settled his payments in full by the set deadline as per rules or operations of the exchange shall be considered a defaulter. Section 42(3) In the event of default by a buyer or roaster to pay by the set deadline, the bank shall immediately issue a notification of the outstanding payments and the interest rates chargeable to the defaulter with a copy to the miller and the exchange and the buyer or roaster shall be automatically suspended from participating on the trading floor until the buyer or roaster pays the outstanding amounts in full and the interest. Section 42(4) The interest on the outstanding payments shall accrue effective from the day following the prompt date at the prevailing commercial bank lending rate at the settlement bank in USD. Section 42(5) If the defaulter does not pay the outstanding amou...

Section 43. Dispute relating to coffee trade Section 43(1) Where a dispute arises in regard to coffee quality, a claim may be brought within sixty days of sale. Section 43(2) The claim shall be based on samples drawn and sealed by a licensed certified warehouse in the original storage location. Section 43(3) In the event of a quality difference between the offer and buying samples, and the actual coffee lot, the buyer or roaster shall make an immediate claim to the miller or appointed broker within three working days and reference may be made to the reference samples. Section 43(4) Where the actual coffee lot does not conform to the buying sample, the parties may, by mutual consent, negotiate a settlement which may include compensation for opportunity cost of funds involved payable by the person who is responsible for the coffee quality difference. Section 43(5) The parties shall be at liberty by mutual consent to agree to a settlement that may also include sorting, bulking, price adjustment or refund. Section 43(6) Incorrect information on the packaging material used for a specific lot shall give the right to a buyer or roaster to charge the miller for all the costs of re-bagging....

Section 44. Disputes relating to coffee weight loss Section 44(1) A licensed warehouseman shall be responsible for any weight loss which shall be the difference between the weight indicated in the coffee warrant or the warehouse receipt as the case may be, and the weight indicated in the weight note provided to the buyer or roaster at the time of release of coffee. Section 44(2) The weight loss claim will be limited to a period of thirty days from the date of the sale and shall be presented by the buyer or roaster to a licensed warehouseman except when such a claim on weight loss is within the acceptable tolerance levels as determined by the exchange from time to time. Section 44(3) Where the disputing parties fail to reach an amicable settlement, the dispute shall be referred to the exchange. Section 44(4) In the event that an aggrieved party is dissatisfied with the decision of the exchange, the party shall refer the matter to the Authority for resolution, failing which the Authority shall put in motion the arbitration process.

Section 45. Assumption of risk Section Prior to payment of the purchase price by the buyer, the property in the coffee shall remain in the grower and it shall be upon the warehouseman to ensure that the coffee is insured at all times prior to receipt of payment and release of the coffee.

Section 46. Accounts and Audit Section 46(1)(a) all sums received and expended by the exchange and matters in respect to which the receipt and expenditure took place; Section 46(1)(b) all sales and purchase of goods by the exchange; and Section 46(1)(c) the assets and liabilities of the exchange. Section 46(2) The exchange shall prepare an annual report containing audited financial statements within four months of the close of the financial year. Section 46(3)(a) balance sheet; Section 46(3)(b) income statement; Section 46(3)(c) all changes in equity; or Section 46(3)(c)(i) all changes in equity; or Section 46(3)(c)(ii) changes in equity other than those arising from capital transactions with owners and distributions to owners; Section 46(3)(d) cash flow statement; and Section 46(3)(e) accounting policies and explanatory notes.

Section 47. Operating capital of an exchange Section An exchange shall comply with the minimum operating capital requirements covering twelve months of its operating costs.

Section 48. Appeal Section 48(1) Any person aggrieved by an act or omission of an exchange may within thirty days after being notified of such act, omission or decision, appeal to the Authority. Section 48(2) Where an applicant is dissatisfied with the decision of the Authority in sub regulation (1), the applicant may seek judicial recourse within thirty days of the decision.

Section 49. Declaration of stocks Section 49(1) All licensed buyers, roasters and millers shall be required to declare held stocks to an exchange to facilitate scheduling of coffee auctions. Section 49(2) Coffee offered and sold at an exchange shall not be re-offered at any other exchange.

Section 50. Certificate of purchase Section 50(1) An exchange shall, after every sale of coffee, issue to the purchaser a certificate of purchase in such form, and containing such details of the coffee purchased, as the Authority may prescribe. Section 50(2) A person shall not alter any certificate or other document issued or prepared for the purposes of these Regulations. Section 50(3) A licensed buyer or other person exporting any coffee shall, within fourteen days of the export of that coffee, submit to the exchange a copy of the relevant certificate of origin or certificate of re-export, as the case may be, stamped by the Commissioner of Customs and Excise, together with a non-negotiable bill of lading relating to the coffee.