Capital Markets (Licensing Requirements) (General) Regulations, 2002

THE CAPITAL MARKETS (LICENSING REQUIREMENTS) (GENERAL) REGULATIONS, 2002

PART I - PRELIMINARY

1. These Regulations may be cited as the Capital Markets (Licensing Requirements) (General) Regulations, 2002.

2. In these Regulations, unless the context otherwise requires – "Act" includes a reference to the Capital Markets Act and the Regulations and Guidelines made thereunder. "Authority" has the meaning assigned to it in the Act. "close relation" means a relationship supported by documentary evidence of a spouse, parent, sibling, child, father-in-law, son-in-law, daughter-in-law, mother-in-law, brother-in-law, grandchild or spouse of a grandchild. "compensation committee" means the investor compensation committee appointed under regulation 71. "Compensation Fund" has the meaning assigned to it in section 2 of the Act. "Custodian" means a bank licensed under the Banking Act or a financial institution approved by the Authority to hold in custody funds, securities, financial instruments or documents of title to assets registered in the name of local investors, East African investors or foreign investors or of an investment portfolio. "demutualization" means the separation of the ownership of an exchange from the right to trade on such exchange. "demutualized exchange" means a securities exchange in which ownership and rights to trade are separate. "liquid capital" in relation to a licensed entity, means the amount which the liquid assets of a licensed entity exceed its liabilities, as may be prescribed by the Authority. "private transaction" means a transfer of a listed security outside a securities exchange authorized by the Authority from one security holder to another whether or not it involves any consideration or change of beneficial interest or is otherwise authorized by the Authority under section 31 of the Act. "professional" means a person giving an opinion in respect of listed securities or in relation to a public offer or listing of securities and includes: (a) any person responsible for the incorporation of a listed company; (b) an advocate, auditor, accountant, investment advisor or stockbroker, underwriter, valuer, engineer, actuary, analyst, economist, management consultant; and (c) other experts whose written opinion with respect to the assets, products or business affairs of the issuer appear in a prospectus or is produced to the Authority. "rights to trade" means the rights of access to and the use of trading related facilities provided and maintained by a securities exchange which a securities exchange may grant a licensee of the Authority, subject to the rules of the securities exchange on admission of trading participants. "securities laws" means the Act, the Central Depositories Act and the regulations and guidelines made thereunder. "working capital" means the difference between the current assets and current liabilities excluding clients’ accounts which shall not fall below twenty percent of the prescribed minimum shareholders funds or three times the monthly operating costs whichever is higher.

PART II - SECURITIES EXCHANGE

3. (1) An application for grant of approval to operate as a securities exchange shall be submitted to the Authority in Form 1 set out in the First Schedule.

(2) The application under paragraph (1) shall be submitted together with: (a) the rules, memorandum and articles of association of the applicant which shall be in a form that is satisfactory to the Authority and restricts the applicant to the business of operating a securities exchange and services incidental thereto; (b) details of the trading system proposed to be adopted by the applicant; (c) the prescribed fees set out in the Second Schedule; and (d) such additional documents as may be required by the Authority.

4. (1) The rules to be adopted by an applicant for approval to operate as a securities exchange shall contain provisions in compliance with the Act on the: (a) admission to the listing, suspension or de-listing of securities by the securities exchange, through a procedure prescribed by the Authority; (b) the conditions governing dealing in securities by its trading participants so as to ensure protection of the rights of investors; (c) prompt disclosure, in a manner that is fair to all investors, of material information of a price sensitive nature and information likely to affect the price of a security including fees on management contracts, to enable appraisal of an issue by investors; (d) protection of investors against abuse of confidential information, misleading information, fraud, deceit, and other adverse practices in the issuing and trading of securities; (e) prohibition of market manipulation in any form; (f) investigation into trading in securities and financial transactions of trading participants and for conducting surprise checks on such trading participants; (g) suspension of trading of any security for the protection of investors or for the conduct of orderly and fair trading; (h) the conduct of securities trading by trading participants and the manner in which information relating to transactions is to be maintained and reported to other trading participants and customers of the securities exchange; (i) segregation from other business accounts of trading participants, of customers funds and securities; (j) arbitration of disputes and provision for appeal to the Authority by trading participants, investors and listed companies; (k) proper safe keeping of securities in its custody; (l) carrying out of the business of the securities exchange with due regard to interest of the investing public; (m) trading rights on a securities exchange; (n) registration with the securities exchange of full members, associate members, their representatives, authorized clerks and dealers; (o) conduct of trading participants, their representatives, authorized clerks and dealers; (p) responsibility of trading participants for the actions of their employees and agents in their dealings with the public; and (q) the listing of medium and large sized companies in the respective market segments such that investors have a range of investment opportunities in listed securities across all sectors of the economy.

5. (1) Trading participants of a securities exchange shall be licensees of the Authority with rights to trade at an approved securities exchange.

(1A) The Authority may prescribe limits on the ownership of a securities exchange by its trading participants.

(2) A securities exchange may, in accordance with the procedures prescribed in its rules, admit as a trading participant, any person who has been licensed by the Authority to exercise rights to trade: (a) if that person satisfies any admission requirements of the securities exchange; and (b) on payment of admission fee approved by the Authority under section 29(2) of the Act, and accord that person the applicable rights to the relevant category of admission.

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