Kenya’s capital markets regulator plans to shake up the industry with new measures to improve liquidity and trading at the Nairobi Securities Exchange.
In the new measures, the CMA plans to either abolish or significantly reduce the lock-in period for shares held by anchor shareholders and directors in listed firms to six months.
According to the CMA, these shares should released into the market for trading.
The latest policy shift will see restricted shares held by majority shareholders of listed firms, including insiders such as directors and managers, offloaded to the market for trading.
The move is likely to adversely affect listed companies such as Co-operative Bank, whose major shareholder, (Co-opholdings Co-operative Society), which controls over 65 per cent stake, opted to hold on to the shares indefinitely even after a five-year lock-in period sanctioned by the regulator ended in 2013.
Co-op Bank was listed on the NSE in 2008 with Co-opholdings Co-operative Society Ltd being incorporated as a special purpose vehicle to hold the 65 per cent strategic investment in the bank by the co-operative movement.
According to the CMA, holding on to the shares by this group of shareholders has denied investors the opportunity to trade in them.
“There are suggestions from the market to do away with this lock-in period for shares or reduce this period significantly. The stakeholders have agreed that we should have more shares available to the public.
“The fact is that the current shares available to the public for trading is very few,” Luke Ombara, CMA director in-charge of regulatory policy and strategy, told The EastAfrican.
“As long as these shares continue to stay dormant, there is an opportunity cost to the public in terms of the shares they would have traded in,” he added.
The EastAfrican has also learnt that the regulator plans to reduce the proportion of free float (shares available for trading) for large companies to five per cent from the current 25 per cent of the issued shares and retain the few at for small and medium-sized companies at 15 per cent.
This is aimed at attracting big companies such as mobile phone operator Bharti Airtel, fast moving consumer goods firm Bidco and state-owned strategic enterprises such as Kenya Pipeline Company and the Kenya Ports Authority, in which the government wants to retain majority shareholding, to the stock market.
“We are interested in the aggregate number of shares for trading and not the proportions because large companies could have smaller proportion of the free float but the actual number of shares trading are so much compared with smaller firms,” said Mr Ombara.
These proposals will now be submitted to the National Treasury as part of the 2019/2020 budget by the capital markets stakeholders.
“We had made a proposal to the National Treasury and they asked us to take it to the public for consultation,” said Ombara.
Other measures under consideration to improve liquidity and trading in the stock market include the use of free float shares to calculate companies’ market value, imposing higher corporate tax on firms with fewer shares in the market and incorporating higher free float as part of the requirements of being included as a constituent counter of the NSE 20-Share Index.