The Capital Markets (Commodities Markets) Regulations 2020 and Capital Markets (Coffee Exchange), Regulations 2020 were gazetted by the Cabinet Secretary for the National Treasury and Planning on 3 April 2020. The gazzettement of the regulations will facilitate the setting up of structured commodities trading in Kenya, by establishing commodities markets.
These regulations will see CMA facilitate the licensing of commodity exchanges, commodity brokers and approval of clearing houses. The regulations further provide for the governance, trading and conduct of business of commodity exchanges and commodity brokers, including the disclosure, compliance and reporting requirements.
Confirming the new development, the Capital Markets Authority (CMA) Acting Chief Executive, Mr. Wyckliffe Shamiah said; ‘’the regulations were developed after a comprehensive consultation process including: bench-marking with regional and international jurisdictions; expert review by consultants commissioned by the State Department for Trade and the Capital Markets Authority (CMA) as well as extensive stakeholder engagement at the County, National and Parliamentary levels’’.
Mr. Shamiah disclosed; ‘’In order to address historical and market structure challenges in the coffee sub-sector, the Coffee Sub-Sector reforms Implementation Committee (CSIC), where CMA is a member, developed the Capital Markets (Coffee Exchange) Regulations 2020 for the sector to reinforce successful reform initiatives for the Coffee Exchange anchored in a legal framework’’.
The Capital Markets (Coffee Exchange) Regulations 2020 provide for; incorporation of the coffee exchange; licensing of brokers; establishment and operationalization of a direct settlement system for expedited and transparent payment of coffee sales proceeds; conducting of trading in a secure, stable and transparent manner in an environment of fair competition; and protection of the interests of the grower, the buyer and other stakeholders at an exchange. The Coffee Exchange Regulations were harmonized with the Capital Markets (Commodity Markets) Regulations 2020’’.
The need to develop structured mechanisms for commodities trading in Kenya is supported by the recognition that smallholder farmers face several challenges due to market inefficiencies manifested in the form of supply chain inadequacies, constrained access to credit, inefficient price discovery, volatility and poor market access which leads to high production and marketing costs. It is widely recognized that strategies to increase production and food security will be futile unless they are accompanied by an efficient and robust warehousing and commodities trading systems’’.
Mr. Shamiah indicated that the gazettement of the Commodities Markets Regulations is aligned to the objective of the Capital Market Master Plan (2014-2023) to position Kenya’s capital market as a centre of excellence in spot commodities markets in agriculture, energy, minerals and metals supported by national derivatives exchanges to stimulate development and economic transformation in the country. This is also in line with the Big 4 Agenda on initiatives enhancing food security and nutrition in the country.
The development of structured commodities trading is expected to provide a transparent, efficient and structured trading system, quality assurance for commodities, efficient price discovery and in the long-term, facilitate improved export competitiveness for Kenyan commodities. This is expected to stimulate domestic value addition and processing, while at the same time, improving the country’s food security status as well as developing other non-agricultural commodity value chains.
The Capital Markets Act was amended in 2016 to expand its mandate to regulate Spot Commodities Exchanges. The Authority, in consultation with the National Taskforce on establishment of a Commodities Exchange in Kenya and the Coffee Sector Reforms Implementation Committee (CSIC), developed the Commodity Markets and Coffee Exchange Regulations to support the establishment of structured Commodities Exchange(s) in Kenya.