•Thursday, March 13, 2008
Following the receivership of Nyaga Stockbrokers, it is very clear that the NSE and its member firms are ripe for major structural and process reforms. A form of business process restructuring/reengineering should be done. This is solidified by the fact that a further four stockbrokers are said to be shaky and all this barely a year after the collapse of Francis Thuo Stockbrokers.
Before addressing the question of reforms, why should the Capital Markets Authority (CMA) and Nairobi Stock Exchange (NSE) act as joint receivers whenever a broker is in the red? Do they really act in the interest of the broker’s creditors? Where do they morally draw their mandate? Are they independent and non-partisan in the broker’s failures?
For example, the broker has a seat at the NSE and the CMA earns some percentage of broker’s commission to sustain its operations. The CMA earns license fees from the brokers. The NSE members are also in competition with the broker in the red yet they are expected to adjudicate in a competitor’s failure. Is it not more prudent to have a professional accountancy/management firm act as receiver manager in such cases?
How would Jimnah Mbaru be objective as NSE chairman when his firm Dyer and Blair will stand to gain from the transfer of clients from the fallen firm? Or James Wangunyu, NSE Vice Chairman and MD of Standard Investment Bank? It is a tall order to expect them to be objective.
NSE reforms that have been mentioned in the past include demutualizing the NSE thereby making it a public company, registration of more brokerage firms, more autonomy and power to the CMA, other stock and commodities exchange markets to be allowed to operate and instilling corporate governance at the NSE. Is there an internal audit department at the NSE and what is their role in interrogating the daily operations at the trading floor? Has there been an assessment of the controls within the trading environment, ATS and CDSC to prevent abuse of the processes and systems by the over-zealous and money-minded dealers?
Further, brokers should be required by law to publish independently audited financial accounts on a regular basis. The NSE should also publish its accounts regularly. Brokers should be encouraged to have an internal audit function whether in-house or outsourced and adoption of international accounting standards and other internal controls standards as well as issuance of standard back office system requirements. The old boys club needs to be broken to allow for more professional and ethical practitioners.
The CMA needs more Stella Kilonzos in their ranks up to the chairman level who are ready to instil discipline and order in the management of stock brokers without fear or favour. A strong CMA may be the best market oversight body after all, with all the legal backing to boot.
Hopefully, Ms Stella Kilonzo will be confirmed as CMA CEO, a position she has held in acting capacity since Dec 07. Nevertheless, her chances are slim. She may have rattled NSE hawks and they know how best to install a stooge at CMA. Especially when CMA starts issuing temporary trading licenses, pending compliance, at what used to be an obvious and unchallenged annual renewal routine.
Before addressing the question of reforms, why should the Capital Markets Authority (CMA) and Nairobi Stock Exchange (NSE) act as joint receivers whenever a broker is in the red? Do they really act in the interest of the broker’s creditors? Where do they morally draw their mandate? Are they independent and non-partisan in the broker’s failures?
For example, the broker has a seat at the NSE and the CMA earns some percentage of broker’s commission to sustain its operations. The CMA earns license fees from the brokers. The NSE members are also in competition with the broker in the red yet they are expected to adjudicate in a competitor’s failure. Is it not more prudent to have a professional accountancy/management firm act as receiver manager in such cases?
How would Jimnah Mbaru be objective as NSE chairman when his firm Dyer and Blair will stand to gain from the transfer of clients from the fallen firm? Or James Wangunyu, NSE Vice Chairman and MD of Standard Investment Bank? It is a tall order to expect them to be objective.
NSE reforms that have been mentioned in the past include demutualizing the NSE thereby making it a public company, registration of more brokerage firms, more autonomy and power to the CMA, other stock and commodities exchange markets to be allowed to operate and instilling corporate governance at the NSE. Is there an internal audit department at the NSE and what is their role in interrogating the daily operations at the trading floor? Has there been an assessment of the controls within the trading environment, ATS and CDSC to prevent abuse of the processes and systems by the over-zealous and money-minded dealers?
Further, brokers should be required by law to publish independently audited financial accounts on a regular basis. The NSE should also publish its accounts regularly. Brokers should be encouraged to have an internal audit function whether in-house or outsourced and adoption of international accounting standards and other internal controls standards as well as issuance of standard back office system requirements. The old boys club needs to be broken to allow for more professional and ethical practitioners.
The CMA needs more Stella Kilonzos in their ranks up to the chairman level who are ready to instil discipline and order in the management of stock brokers without fear or favour. A strong CMA may be the best market oversight body after all, with all the legal backing to boot.
Hopefully, Ms Stella Kilonzo will be confirmed as CMA CEO, a position she has held in acting capacity since Dec 07. Nevertheless, her chances are slim. She may have rattled NSE hawks and they know how best to install a stooge at CMA. Especially when CMA starts issuing temporary trading licenses, pending compliance, at what used to be an obvious and unchallenged annual renewal routine.
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