Category Archives: NSE stockbrokers

Kenya launches futures derivatives markets

The Nairobi Securities Exchange (NSE) has gone live with NEXT – futures derivatives trading in a move to enhance risk management and becoming the second exchange in Africa to offer exchange-traded derivatives.

The NSE will offer two types of derivatives; equity single stock futures (SSF) starting with shares of five listed firms that met specific criteria such as high daily trading volumes (British American Tobacco, East Africa Breweries, Equity Group Holdings, Kenya Commercial Bank Group, and Safaricom Plc) as well as an NSE 25 Share Index futures (EIF) that provides investors with a benchmark to track the performance of the Kenyan securities market. The introduction of NEXT futures will also increase trading activity and liquidity at the NSE as investors will have the potential for greater returns, even when share prices are going down (short selling), as they only have to put up a small amount of money as leverage.

This comes after a successful six-month pilot test in which end-to-end derivative transactions were done in a live environment, and which tested the capabilities of market players. Kenya’s Capital Markets Authority (CMA) then granted approval in May 2019 for the NSE to launch and operate the derivatives exchange market.

The CMA has also licensed several entities to undertake derivative services.  The stockbrokers that will offer derivatives futures to investors from today will be African Alliance Securities, AIB Capital, Apex Africa Capital, CBA Capital, Dyer & Blair Investment Bank, Faida Investment Bank, Genghis Capital, Kestrel Capital,  Kingdom Securities, NIC Securities, SBG Securities, Standard Investment Bank and Sterling Capital. Also, two banks, Stanbic and Cooperative, will provide clearing and settlement services, collecting margins and generating data and reports on futures trading activities.

The launch of NEXT derivatives trading comes after a series of other innovations at the NSE including the introductions of the M-Akiba mobile phone bond, Real Estate Investment Trusts (REIT’s), asset-backed securities and exchange traded funds (ETF’s). If the uptake and performance of stock futures are successful, next at the NSE will be currency derivatives and interest rate derivatives.

EDIT November 2019: The Capital Market Soundness Report- Q3. 2019 from the CMA showed that 349 contracts were traded between 4th July 2019 and 30th September 2019.

Of these, the market traded 248 Safaricom contracts representing a turnover of KES 6.9 million; banking contracts came in second with 58 KCB Group contracts traded at a total turnover of KES 2.3 million; and 26 Equity Bank contracts traded at KES 1.0 million. The NSE 25-Share index contract traded 12 contracts at a total turnover of 2.6M.

Genghis Stock Picks for 2019

Nairobi-based investment bank Genghis Capital launched their 2019 “investor playbook” with the theme of embracing value. 2018 was a challenging year for the Kenyan economy and capital markets and that is expected to continue in 2019, but this also presents opportunities for investors.

Kenya has a relatively small number of stocks (65) on the Nairobi Stock Exchange (NSE) – and Genghis chose nine stocks as their 2019 financial (banking & insurance) and non-financial picks for investors, in three categories:

  • Momentum stocks: Equity Bank, East African Breweries, KCB Group, Safaricom.
  • Income stocks: Stanbic, Barclays Kenya, Standard Chartered, KCB. 
  • Value stocks: Kenya Reinsurance, KCB, Bamburi Cement. 

They cited that Safaricom scored positively in every category while KCB and Equity banks had embraced digitization, high asset quality and low cost structures.

Other points from the playbook launch presentation:

  • They do not expect a repeal of interest rate caps this year, even though its impact has been negative on the economy.
  • Funds raised for infrastructure bonds are not all being used for that; some are going to retire other debts and they should be properly used
  • Public-private partnerships are not coming to fruition; paperwork for the Nairobi-Nakuru highway was submitted in April 2018 but there has been no decision.
  • To a question – “what is the regulator doing to increase the confidence of investors amid fraud incidents?” – the CMA can only do so much and the onus is still on the company directors. International markets have graver penalties than Kenya and perhaps it is time the Director of Public Prosecutions started looking at some cases here and following through on enforcement. 
  • While Kenya Re is a pick in the playbook, they generally don’t cover the insurance sector – it has challenges including fraud, price under-cutting, and low penetration levels (3%) and a lot has to happen to unlock value and growth in the insurance mass market. Kenya Re is there because it is under-valued (owing to lack of clear strategy and proper management) but would be desirable to other insurance investors if the government decided to sell its shareholding.
  • They expect one main listing and others on the smaller NSE boards this year. But while a number of planned privatizations have been mentioned  – Consolidated and Development banks, Kenya Pipeline, Kenya Ports they face numerous hurdles while others like sugar companies in Western Kenya have been on the pipeline since 2011. 

Case Digest – Kenyan Capital Markets Court Cases

Kenya’s Capital Markets Authority (CMA), has published a digest of legal cases that Authority has been involved in, and some of which were later appealed.

The 27 cases cover ten years, and most the largest share involve dealings at  Uchumi and others revolve around executives and directors of CMC, commercial banks, and a handful on rogue stockbrokers who preyed on retail investors during the heyday of the Nairobi Stock Exchange during the IPO listings of Kengen and Safaricom.

Some notable cases include, Solomon Alubala who was fined Ksh 104.8 million and barred from holding a position at a listed firm for ten years, Bernard Mwangi who attended Uchumi board meetings and sold shares while the company was performing poorly, CMA cases versus Jeremiah Kiereini and  Martin Foster, Chairman and CEO of CMC Motors, the CMA versus the Institute of Certified Public Accountants of Kenya (ICPAK) over audits done by its members at CMC, cases involving Chadwick Okumu, CFO of Uchumi, and CMA versus Jonathan Ciano, a CEO who was for a time celebrated for turning round the Uchumi. They also have a case of Alnashir Popat and Imperial Bank directors, and Munir Ahmed MD of National Bank who the CMA fined Kshs 5 million and barred from holding a position at a listed company for three years.

The cases are published in partnership with the National Council for Law Reporting who have an online database of over 124,000 court cases.

Nairobi Stockbrokers Take a Bath

Last week saw the release of financial results of SBG Securities (formerly CFC Stanbic Financial Services/CSFS). They are the first stockbroker (they are actually licensed as an Investment Bank) to release their 2016 results and this was done along with the release of the results of Stanbic Bank and their common parent – Stanbic Holdings.

At SBG Securities, revenue dropped from Kshs 599 to Kshs 294 million. This was mainly due to stockbrokerage commissions which reduced from Kshs 399 to Kshs 223 million. Expenses were largely unchanged except for salaries that went down from Kshs 183 to 142 million.

SBG’s pre-tax profit for the year was Kshs 3 million, which was substantially down from Kshs 277 million in 2015. Their balance sheet also reduced down from Kshs 1 billion to 648 million. SBG is the number 3 stockbroker in Kenya with 13.8% share, and in
2015, SBG was second in brokerage commission behind Kestrel Capital.

In a notice sent to clients, they reported that turnover at the Nairobi Securities Exchange for the year was Kshs 294 billion compared to Kshs 419 billion in 2015. Also, that market weakness is expected to continue in 2017. But they added:

A new year always starts on a high with each of us drafting our investment/ financial resolutions. As the year progresses, so do our plans and at times they don’t necessarily materialize. 2017 can be the year that you fulfill your investment resolutions by investing in shares listed on the Nairobi Securities Exchange. Whilst the market has hit an 8-year low, we believe this is the time to invest.

5 ways to protect your NSE shares from irregular sales

We all hope the days of collapsing stockbrokers at the Nairobi Stock Exchange (NSE) are now a thing at the past. However new share offering such as Britak, Family Bank and Bank of Kigali, and other personal finance initiatives such as the I’m a Cooperator movement are likely to convert some people into first time share buyers. So how does one ensure that their funds are not misused by an errant stockbroker or their employees? Read on

A guest post by Shiroh
While it takes a lot of sweat to save for investments, many investors have found themselves in a tricky situation when unscrupulous dealers engage in irregular sale of their shares. While this practice cannot be tolerated for all involved, it is important that one takes proactive steps to avoid losing your investments. These can include;

1. Subscribing to the Central Depository System Alert Service: The mobile phone has truly revolutionized many industries in Kenya. For a nominal amount of Kshs. 10, one can receive alerts to their mobile phone anytime a transaction is made from their CDSC account. For more details, check the CDSC Kenya website.

2. Freezing activity on CDS Account: Since getting mobile phone may not be possible for people residing abroad, freezing any activity on a CDSC account can be done. These instructions are communicated to the CDSC and activity can only resume at the request of the account holder.

3. Constantly monitoring your activity of your account at your preferred Stockbroker. Many people don’t bother to check the activity of their accounts once they make the investments only to get a shock of their lives when they want to liquidate them. A broker is under obligation to provide investors with a statement of account through which they can monitor the movement of their investments.

4. Developing a personal relationship with a dealer or broker. While some personal relationships work to the detriment of the investor, sometimes having a specific person who can address any enquiries that you have can be a great plus.

5. Finally, you should report any fraudulent sale of shares to the Complaint Handling Unit of the NSE.