The Capital Markets Authority (CMA) has opened a window for new firms to list shares on the Nairobi Securities Exchange through an electronic process in a move that aims to reduce the time and cost of initial public offerings for issuers and protect investors from refund errors.
This is part of reforms that the markets regulator and other stakeholders are implementing to spark fresh interest in the bourse that attracted a quick succession of listings during the late President Mwai Kibaki’s administration.
CMA through a legal notice No. 172 has however tightened rules for electronic initial public offerings (IPOs) to ensure fair and equitable allocation of shares to investors and prevent the recurrence of trading malpractices which have in the past hurt investors in the Kenyan capital markets.
Nairobi Securities Exchange vice chairman Paul Mwai says the use of electronic processes in IPOs will hasten the transactions, reduce costs and eliminate issues to do with refunds.
“IPO process is quite cumbersome, that is the reconciliation and refunds and all those kinds of things. If this process can be automated, it becomes quite quicker and cleaner. In some cases you can actually do a first come, first served basis and help to eliminate the issues of refunds,” says Mr Mwai.
“But the problem is that not all Kenyan investors are tech savvy but they can be assisted in terms of the brokers and the agents can help them to put the electronic applications."
Electronic IPOs give firms the opportunity to conduct IPOs on the internet or in other electronic or automated means or media, wholly or partially, where investors subscribe to the offer of securities by submitting applications electronically or the applications and allotments are processed and completed electronically.
Last year, Uganda became the first country in East Africa to conduct an electronic IPO through the offer of Airtel Uganda shares to the public.
This made it easier for foreign investors, including residents of other East African countries, to participate.
In 2008 the CMA allowed partial use of electronic means in the Safaricom IPO only in the application process.
Through the gazette notice, CMA says firms seeking to offer shares in an electronic format shall be required to ensure that the information memorandum is disclosed in the same form and content approved by the Authority.
