Kenya's market regulator set to license futures exchange operators

Kenya is processing applications for licences to operate derivatives exchanges from both local and foreign firms, the capital markets regulator said on Tuesday, as Nairobi inches towards its goal of becoming an international financial centre.

Paul Muthaura, acting chief executive of the Capital Markets Authority (CMA), told Reuters after a media briefing that such exchanges were vital to that plan, but he did not say when operators would be chosen nor when exchanges would open.

The exchanges will offer futures and other derivatives on minerals and commodities as well as currencies and interest rates, as Kenya tries to boost its financial services market share in east Africa, a region of more than 120 million people.

Agriculture makes up nearly a quarter of the country's $35 billion-a-year economy, employing two thirds of the population of 40 million people.

The government is also planning to tap Kenya's mining sector, partly by carrying out of an aerial survey of mineral resources and establishing a minerals exchange.

CMA is working with the country's 47 regional governments, established after elections in March, to allow them to raise funds in the capital markets, Muthaura said.

Robust growth in Kenya's capital markets has been driven in recent years by domestic economic expansion at home, and has pulled in yield-hungry offshore investors.

Shares on the Nairobi Securities Exchange (NSE) jumped 30 percent in the year to September, with foreign inflows hitting a record 9.8 billion shillings ($114.55 million) in August, and average monthly bond turnover rose to 39 billion shillings in 2013 from 9 billion in 2009.

The investment climate was helped by this year's elections passing peaceful, unlike the 2007 poll when 1,200 people were killed in post electoral violence.

And analysts say that the country is unlikely to see long-term investors pull money out because of the September attack on a Nairobi shopping mall in which more than 60 people were shot by al Qaeda-linked militants.

Still, the country has a long way to go to improve its ability to attract equity listings and debt securities.

The World Bank ranks Kenya 129 out 189 countries for ease of doing business, way below the island state of Mauritius, which is already an established offshore financial centre.

Muthaura said they were addressing those shortfalls through various initiatives such as legal reform.

An amended capital markets law that will make it easier to prosecute market manipulators was going through the final stages of the country's parliament, he said.