CMA is set to recover Ksh208 million from illegal trading in fixed income securities
Nairobi, 15 May 2019…The Capital Markets Authority (CMA) has taken enforcement action against Mr. Rodrick Muhoro, a bond trader, following conclusion of investigations with respect to allegation of irregular trading of Government Securities in 2016 and 2017. CMA has imposed a financial penalty of Kshs 208 Million being twice the amount of benefit Mr Muhoro received from irregular trading and banned him from conducting bonds trading for a period of 10 years.
According to the investigations, Mr. Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front running. This happened when Mr Muhoro colluded with fixed income dealers at brokerage firms through creation of artificial arbitrage opportunities, thereby realising a capital gain of Kshs104 million by taking advantage of the price differential before the client orders were executed. The gains would later be shared between Mr. Muhoro and fixed income dealers at brokerage firms in contravention of provisions of the Capital Markets Act.
Front-running is a market manipulation scheme involving an unethical and illegal trading practice in which a broker with advance knowledge of a specific market orders with price differentials of a financial security for clients earns an arbitrage profit by placing an order for their own account or a person associated with the broker in advance of the client's orders.
The Authority will refer the matter to the Director of Pubic Prosecution for consideration of criminal investigations on market manipulation; the Asset Recovery Agency to trace and recover assets allegedly bought with illegal capital gains; and the Institute of Certified Public Accountants of Kenya for consideration of disciplinary action for professional misconduct.
BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY
The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.
The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest. For more information, please contact: Antony Mwangi, Head of Corporate Communications on