The Capital Markets (Collective Investment Schemes) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Collective Investment Schemes) Regulations.

Section 2. Interpretation Section In these Regulations, unless the context otherwise requires— "Act" means the Capital Markets Act; "certificate of entitlement" means a document of title, statement of account or any other document evidencing ownership of the holder thereof to one or more shares acquired by the holder in a collective investment scheme; "custodian" means a company approved by the Authority to hold in custody funds, securities, financial instruments or documents of title to assets of a collective investment scheme; "dealing" means an act of buying, selling or agreeing to buy or sell or trade shares by a fund manager; "collective investment scheme portfolio" means all cash and other collective investment scheme portfolio for the time being held or deemed to be held upon trust pursuant to a trust deed establishing a collective investment scheme or other incorporation or offering document of a collective investment scheme, other than the amount for the time being standing to the credit of the distribution account; "dilution" means that a collective investment scheme may suffer reduction in the value of its collective investment scheme portfolio as a result of costs incur...

Section 3. Application for consent. Section the prescribed application fee;

Section 4. Documents to accompany application. Section 4(1)(a) draft incorporation documents of the collective investment scheme; Section 4(1)(b) memorandum and articles of association of the promoter; Section 4(1)(c) memorandum and articles of association of the proposed fund manager; Section 4(1)(d) business plan; Section 4(1)(e) one bank reference; and Section 4(1)(f) two professional or business references. Section 4(2) Consent granted for the registration of a collective investment scheme shall lapse after three months.

Section 5. Application for registration of a collective investment scheme Section the incorporation documents;

Section 6. Notification of registration. Section The Authority shall advise the promoter within thirty days of receipt of the application for registration of a collective investment scheme whether registration has been granted.

Section 7. Form of certificate Section The certificate of registration of a collective investment scheme shall be in Form 2 set out in the First Schedule.

Section 8. Requirements of incorporation documents Section 8(1) The incorporation documents of a collective investment scheme shall contain the documents specified in the Second Schedule. Section 8(2) Nothing in the incorporation documents may provide that a trustee, custodian, fund manager or board of directors of a collective investment scheme shall be exempt from liability to a holder for breach of trust, fraud or negligence, or be indemnified against such liability by holders or at the holder's expense.

Section 9. Alteration of incorporation documents Section 9(1) All proposed alterations or additions to the incorporation documents shall be submitted to the Authority for prior approval. Section 9(2) The Authority shall determine whether holders shall be notified of any alterations or additions to the incorporation documents and the period of notice if any to be applied before the changes are to take effect. Section 9(3) The notice period referred to in subregulation (2) shall not exceed three months unless the Authority, having regard to the merits of the case, otherwise determines.

Section 10. Alterations subject to approval of the Authority. Section 10(1)(a) is necessary to enable compliance with fiscal, statutory or other official requirements; or— Section 10(1)(b) does not materially prejudice holders' interests, does not to any material extent release the trustee, custodian, fund manager or the board of directors, their agents or associates from any liability to holders and does not materially increase the costs payable from the collective investment scheme portfolio concerned; or Section 10(1)(c) is necessary to correct a manifest error. Section 10(2) All alterations under this Regulation shall be filed with the Authority within seven days of the relevant decision.

Section 11. Inspection Section The fund manager shall make the incorporation documents available for inspection free of charge to any of the collective investment scheme's holders at all times during ordinary office hours at the registered office of the fund manager.

Section 12. Collective Investment scheme to issue information memorandum Section A collective investment scheme shall not offer its shares for sale to the public or a section of the public issued an information memorandum approved by the Authority which complies with the Fourth Schedule.

Section 13. Requirements of information memorandum Section 13(1) Every information memorandum of a collective investment scheme shall contain the information listed in the Fourth Schedule. Section 13(2) Application forms supplied to persons who are not holders shall be accompanied by the information memorandum but advertisements or investment plans containing an application form and all the information listed in the Fourth Schedule may also be used. Section 13(3) Where performance data or estimated yields are included in an information memorandum, advertisement or any other invitation to the public to invest in the collective investment scheme, the Authority may require justification of the calculations resulting in such performance data or estimated yields. Section 13(4) Forecast of a collective investment scheme's performance shall not be made in the information memorandum and the publication of a prospective yield shall not constitute a forecast of performance and a statement to the effect that the publication is that of a prospective yield and not a forecast of performance shall be made in the information memorandum, advertisement or any other invitation to the public.

Section 14. Revision of information memorandum Section 14(1)(a) reviewed and revised at least once in every six months to take account of any change or new matter, other than a matter which reasonably appears to the fund manager to be insignificant; Section 14(1)(b) revised immediately upon the occurrence of any material change in the matters stated therein or upon the occurrence of any new material information which ought to be disclosed therein. Section 14(2) A revision of the information memorandum may take the form of a complete substitution of the previous information memorandum or a supplement to the information memorandum and the date of the revision shall be prominently displayed. Section 14(3) Any amendments to the information memorandum shall require the prior approval of the Authority.

Section 109. Approval of and registration with the Authority Section 109(1) A listed company may set up an employee share owner-ship plan (hereinafter referred to as ESOP) to enable its employees own shares of the listed company subject to approval of the Authority. Section 109(2) Every ESOP shall be registered with the Authority.

Section 110. ESOP Unit trust Section An Employee Share Ownership Plan shall be structured as a unit trust (the ESOP Unit Trust).

Section 111. Requirements for ESOPS Section proposed trust deed and scheme rules;

Section 112. Investment parameters Section An ESOP Unit Trust shall acquire or purchase shares of the listed company from time to time as may be required by the rules of the ESOP. Provided that an ESOP Unit Trust shall not acquire or purchase any securities other than the shares of the listed company for which it is established.

Section 113. Minimum number of trustees Section There shall be at least three trustees of an ESOP Unit Trust save that a trust corporation may act as sole trustee of an ESOP Unit Trust.

Section 114. Creation of units Section The trustees of an ESOP Unit Trust shall hold the certificates representing the shares of the listed company in the trustees' names and create corresponding units in the same denominations as the listed company's shares purchased by the trustees to be allotted and issued to the employee entitled thereto under the ESOP.

Section 115. Certificate of entitlement to holders Section The trustees shall issue to every employee entitled to the units under the ESOP a certificate of entitlement representing the number of units owned by the employee in the ESOP Unit Trust within thirty days of receiving the company's certificate of entitlement against which such units were issued and maintain a register of all unit holders.

Section 116. Rights on the certificate of entitlement Section The certificates representing the units owned by employees shall not be transferable nor traded at any securities exchange but the units represented therein may, at the option of the unit holder be pledged or re-purchased by the trustees for cash.

Section 117. Price of units Section The rules of the ESOP shall prescribe the price at which an ESOP Unit Trust shall allot the units to the employee, the price at which the trustees shall re-purchase units and the liability for incidental expenses but such re-purchase shall reflect the latest traded price of the company's shares at the securities exchange.

Section 118. Surrender of certificates by employee Section On termination of employment of an employee, the employee shall surrender all certificates representing the units held by such employee in an ESOP Unit Trust to the trustees at such time as prescribed by the ESOP rules.

Section 119. Redemption or transfer Section transfer in a private transaction in accordance with the prescribed procedure for private transactions, to the name of the employee, the number of shares of the listed company corresponding in value to the units represented in the surrendered share certificate and cause the employee's name to be registered as the owner of such shares in the register of the listed company; or

Section 120. Exchange of units not permitted Section Save as provided in these Regulations, the trust deed of an ESOP Unit Trust shall not permit the exchange of units of an ESOP Unit Trust with shares of the listed company.

Section 121. Audit Section The trustees of an ESOP Unit Trust shall cause an audit of the ESOP to be carried out once every year by qualified persons and shall submit a copy of the auditor's report to the unit holders and the Authority within sixty days of the completion of the audit.

Section 122. Winding up Section An ESOP Unit Trust may be varied or wound up in accordance with its rules but three months' notice of intention to wind up an ESOP Unit Trust shall be given to the unit holders and the Authority.

Section 123. Disclosures

Section 124. Definition Section For the purposes of these Regulations, a special interest collective investment scheme means a collective investment scheme established by a promoter for the purposes of facilitating investment by a special group of individuals with a common interest in a listed company and may include farmers, distributors, supplier, among others.

Section 125. Approval and registration with the Authority Section 125(1) A promoter may set up a special interest collective investment scheme for the purposes of investing in the securities of a specified listed company subject to the approval of the Authority. Section 125(2) Every special interest collective investment scheme shall be registered with the Authority.

Section 126. Special interest unit trust Section A special interest collective investment scheme shall be structured as a unit trust and the promoter shall notify the listed company upon approval and registration with the Authority.

Section 127. Requirements for special interest unit trust Section proposed trust deed and scheme rules;

Section 128. Investment parameters Section A special interest collective investment scheme shall acquire or purchase shares of the listed company from time to time as may be required by the rules of the scheme: Provided that a special interest collective investment scheme shall not acquire or purchase any securities other than the shares of the listed company for which it is established.

Section 129. Minimum number of trustees Section There shall be at least three trustees of a special interest collective investment scheme.

Section 130. Creation of units Section The trustees of a special interest collective investment scheme shall hold the certificates representing the shares of the listed company in the trustees' names and create corresponding units in the same denominations as the listed company's shares purchased by the trustees to be allotted and issued to the holder entitled thereto under the special interest collective investment scheme.

Section 131. Certificate of entitlement to holders Section The trustees shall issue to every holder entitled to the units under the special interest collective investment scheme a certificate of entitlement representing the number of units owned by the holder in the special interest collective investment scheme within thirty days of receiving the company's certificate of entitlement against which such units were issued and maintain a register of all unit holders.

Section 132. Rights on the certificate of entitlement Section The certificates representing the interest of a holder shall not be transferable nor traded at any securities exchange but the units represented therein may, at the option of the holder be pledged or repurchased by the trustees for cash.

Section 133. Price of units Section The rules of the special interest collective investment scheme shall prescribe the price at which that unit trust shall allot units to the holders or potential holders, the price at which the trustees shall re-purchase units and the liability for incidental expenses but such re-purchase shall reflect the latest or previous day's traded price of the company's shares at the securities exchange.

Section 134. Redemption or transfer Section transfer in a private transaction in accordance with the prescribed procedure for private transactions to the name of the holder, the number of shares of the listed company corresponding in value to the units represented in the surrendered share certificate and cause the holder's name to be registered as the owner of such shares in the register of listed company; or

Section 135. Exchange of units not permitted Section Save as provided in these Regulations, the trust deed of a special interest collective investment scheme shall not permit the exchange of units of the scheme with shares of the listed company.

Section 136. Audit Section The trustees of a special interest collective investment scheme shall cause an audit of the scheme to be carried out once every year by qualified persons and shall submit a copy of the auditor's report to the holders and the Authority within sixty days of the completion the audit.

Section 137. Winding up Section A special interest collective investment scheme may be varied or wound up in accordance with its rules but three month's notice of intention to wind up the scheme shall be given to the holders and the Authority.

Section 138. Disclosures Section Every listed company shall disclose an special interest collective investment scheme which has an acquired or is to acquire shares, the number of shares purchased from the exchange and the aggregate holding of the scheme in the listed company in its annual report.

Section 15. Obligation to appoint a fund manager Section Every collective investment scheme shall appoint in writing a fund manager approved by the Authority to manage the day to day operation of the collective investment scheme.

Section 16. Management of a collective investment scheme Section 16(1) No person shall be appointed as a fund manager of a collective investment scheme unless such a person holds a licence to operate as a fund manager issued by the Authority. Section 16(2) A fund manager of a collective investment scheme may in relation to the custodian or trustee of such collective investment scheme, be a holding company or a subsidiary company within the meaning of the terms as defined in section 154 of the Companies Act, (Cap. 486) or be deemed by the Authority to be otherwise under control of substantially the same persons or the consist substantially of the same shareholders, provided that the investment in a related company shall be limited to ten percent of the total funds managed by the fund manager. Section 16(3) A fund manager shall at all times maintain a paid-up share capital and unimpaired reserves of not less than ten million shillings for the operation of the collective investment scheme. [L.N. 165/2002 , r. 2.]

Section 17. Duties of a fund manager Section 17(1) A fund manager of a collective investment scheme shall carry out the administration of the fund including the management of the portfolio of investments in accordance with the direction and the authority of the trustee or the board of directors, as the case may be, as well as the provisions of the incorporation documents, the information memorandum, the rules of the collective investment scheme and these Regulations. Section 17(2)(a) advising the trustee or board of directors, as the case may be, on the asset classes which are available for investment; Section 17(2)(b) formulating a prudent investment policy; Section 17(2)(c) investing the scheme's assets in accordance with the scheme's investment policy; Section 17(2)(d) reinvesting any income of the scheme fund which is not required for immediate payments; Section 17(2)(e) instructing the custodian to transfer, exchange, deliver in the required form and manner the scheme assets held by such custodian; Section 17(2)(f) ensuring that the shares or units in the collective investment scheme are priced in accordance with the information memorandum, the rules of the collective investme...

Section 18. Records to be maintained by a fund manager Section 18(1)(a) keep and maintain a record of all minutes, statements of accounts and resolutions in respect of the scheme's investment portfolio; Section 18(1)(b) keep or cause to be kept proper books of accounts and records in which shall be entered all transactions effected by the fund manager for the account of the collective investment scheme and permit the trustee or board of directors from time to time on demand to examine and take copies of or extracts from any such books and records; Section 18(1)(c) maintain a daily record of shares held by the fund manager, including the type of such shares acquired or disposed of, and of the balance of any acquisitions and disposals; and Section 18(1)(d) keep and maintain a daily record of the shares of the scheme which are held, issued, redeemed, exchanged, and the valuation of the collective investment scheme portfolio including particulars given in Regulation 69, required upon completion of a valuation. Section 18(2) The fund manager shall make the collective investment scheme's records available for inspection by the trustee, board of directors or the Authority free of charge a...

Section 19. Fund manager's reports Section 19(1)(a) a valuation of the scheme fund and of all the investments representing the same, including the details of the cost of such investments and their estimated yields; Section 19(1)(b) a report reviewing the investment activity and performance of the investment portfolios comprising the scheme fund since the last report date and containing the fund manager's proposals for the investment of the scheme fund during the period; and Section 19(1)(c) a record of all investment transactions during the previous period. Section 19(2)(a) the fund manager's capital resources actually employed or immediately available for employment for the purposes of the scheme; Section 19(2)(b) as a percentage of the total market value of the collective investment scheme portfolio; Section 19(2)(b)(i) as a percentage of the total market value of the collective investment scheme portfolio; Section 19(2)(b)(ii) as a percentage of the total amount of securities of that class issued by the concern in which the investment is held; and Section 19(2)(b)(iii) indicating the percentage of such securities in relation to the investment guidelines specified in Regulation 7...

Section 20. Liability of a fund manager Section 20(1) The fund manager of a collective investment scheme shall not be liable for any loss, damage or depreciation in the value of the scheme fund or of any investment comprised therein or the income therefrom which may arise by reason of depreciation of the market value of the shares and other assets in which scheme funds are invested unless such loss, damage or depreciation in the value of the scheme fund arises from negligence whether professional or otherwise, willful default or fraud by the fund manager or any of its agents, employees or associates. Section 20(2) In the absence of fraud or negligence by the fund manager, the fund manager shall not incur any liability by reason of any matter or thing done or suffered or omitted by it in good faith under the provisions of the incorporation documents, information memorandum, rules of the collective investment scheme or these Regulations. Section 20(3) The fund manager shall not be under any liability except such liability as may be expressly assumed by the fund manager under the incorporation documents, information memorandum, the rules of the collective investment scheme and these R...