CMA move likely to excite sector
A vibrant Nairobi Securities Exchange (NSE) is important to the economy, and coming on the back of Covid-19 shocks, attempts by the Capital Markets Authority (CMA) to stir up trade could not have come at a better time.
After years of a listing dry spell, CMA is reviewing regulations including public offerings and listing, whistle-blowing, share buy-back guidelines, crowd-funding regulations and credit rating procedures.
Discussions on direct listing and controlling pricing of essential market data to spur the market is a move in the right direction.
Through direct listing, the regulator will allow companies list shares on the NSE without hiring banks to underwrite the transaction, as is the case during an Initial Public Offer (IPO).
Firms seeking public listings can save underwriting fees, which is the single largest cost associated with IPOs in Kenya, hence making investment at the bourse attractive and easier.
The sector must, reach out to stakeholders who think that the direct listing proposal might fail to lift off in the local market, on account of being highly exposed to risks such as volatility in pricing and low demand.
New CMA proposals are part of a review of rules governing trading and must be midwifed carefully, to achieve the desired results and excite the sector which has been going through a listing dry spell for close to a decade.
While at it, the authority must ease the cost of doing business, by reviewing all costs associated with market data access.
This will be a good start, making liberalisation of data a key facet of attracting retail investors.
While NSE offers a 90 per cent discount to students and academic researchers, the opportunity cost of lower or nil charges to access the information can regenerate the sector.
The Sh117,000 annual fee charged by NSE for data which translates to a daily fee of Sh350 for each set of equities and traded bonds, should also be looked into.
It would also interest CMA to actualise guidelines that will enable listed firms to buy back their shares.
Share buy-backs are a useful tool to return surplus cash to shareholders and listed global companies often use this mechanism when they feel their shares are undervalued.
By reducing the number of shares in the market, and hence the supply of traded shares, listed companies can boost their share price and, therefore, provide long-term shareholder value.
Importantly, shareholders who retain their shares in a buyback, effectively take a long-term view in the hope of benefitting from a higher share price in the future.