In addition to regulation, the Authority has a mandate of developing all aspects of the capital and commodity markets with emphasis being on:
- Advising on/advocating for the removal of impediments to, and the creation of incentives that could stimulate longer-term investments for the benefit of both investors and issuers in Capital Markets;
- Developing a framework to facilitate the use of electronic commerce channels for the development of capital markets in Kenya.
- Fostering financial inclusion by catalyzing a reliable system of institutions, infrastructure and products & services to enable wider participation of the general public in the country’s capital and commodity markets;
- Encouraging innovation, improved uptake and sustenance of capital market products and services that trade in an orderly, fair, and efficient manner, by facilitating the implementation of a system in which the market’s participants are self-regulating.
SOME OF THE AVAILABLE CAPITAL MARKET PRODUCTS
This is the oldest financial instrument in the Kenyan Market. Equity refers to the ownership of interest in a company and carries limited liability. Offers of equity securities to the public are governed by the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002. Potential investors can invest in this product through the primary market; an Initial Public Offer (IPO) a Rights Issue or through the secondary market on the Nairobi Securities Exchange.
To learn how to issue/invest in Shares/Equity please Click HERE
A bond is a debt investment/instrument in which an investor loans money to an entity, corporate or government, which borrows the funds for a defined period at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign Treasury Bonds
governments to raise money and finance a variety of projects and activities. Owners of bonds are referred to as debt holders or creditors of the issuer. There are two main categories of bonds issued in the Kenyan Market namely:
These are medium Treasury Bonds
to long term, debt instruments, usually older than a year, issued by the Government of Kenya to raise money in local currency that is used to finance budgetary goals. The types of Treasury bonds may be defined by the purpose, interest rate structure, maturity structure, and even by the issuer. So far, the Government has issued Fixed-Coupon/Rate Bonds, Zero-Coupon, Floating Rate, Infrastructure (project-specific), Restructuring/Special bonds, and Savings Development bonds. Most issued bonds in Kenya are fixed-coupon bonds that have huge investor demand. Treasury bonds which are issued on a monthly basis are available in both the primary market (through auctions) and the secondary market (through the Nairobi Securities Exchange). An investor needs at least Kshs. 50,000 to purchase Treasury bonds in Kenya
To learn how to issue/invest in Treasury Bonds please Click HERE
These are long-term (at least one year and above) debt instruments issued by private and public institutions. The prescribed minimum lot as per the public offers regulations is Ksh 100,000/=. This implies that this product is available to an investor who is willing to invest a minimum amount of Kshs 100,000/=
To learn how to issue/invest in Corporate Bonds please Click HERE
Collective investment schemes are pools of funds that are managed on behalf of investors by a professional fund manager. These are arrangements made or offered under which the contributions, or payments made by the investors, are pooled and utilized with a view to receiving profits, income, produce or property, and is managed on behalf of investors according to specific shared investment objectives that have been established for the scheme. Collective investment funds groups assets from individuals and organizations to develop a larger, diversified portfolio. In return for putting money into these funds, the investor receives units that represent his/her pro-rata share of the pool of fund assets. The performance of the fund is dependent on the market value of the instruments in which the pool of money is invested, therefore it fluctuates. The yield for money market funds and the price for the other funds is calculated daily. Collective Investment Schemes may take the form of:
Bond/fixed income funds
Money market funds v. Special funds
To learn how to issue/invest in Corporate Bonds please Click HERE
Real Estate Investment Trusts are designed to enable the investing public to benefit from investments in large-scale real estate enterprises. They invest in real estate through property or mortgages and often trades on the securities exchange like a stock. REITs provide investors with an extremely liquid stake in real estate and mortgage properties. There are two main types of REITs in Kenya namely:
Income Real Estate Investment Trusts (I-REITs)
This is a real estate investment trust that primarily derives its revenue from property rentals. It owns and manages income generating real estate for the benefit of its investors. Distributions to investors are underpinned by commercial leases. I-REITs provide an instrument for investing in the real estate market which offers both liquidity and a stable income stream.
Development Real Estate Investment Trust (D-REIT)
This is a real estate investment scheme where the proceeds of the REIT go towards development and construction of property for sale and/or rental. The returns from D-REITs come from capital gains from the project when the company completes development and exits by either sale to the open market, or to an I-REIT.
To learn how to issue/invest in REITs please Click HERE
ABSs are created by buying and bundling loans or payables – such as residential mortgage loans, commercial loans or student loans – and creating securities backed by those assets, which are then sold to investors. Often, a bundle of loans is divided into separate securities with different levels of risk and returns. Payments on the loans are distributed to the holders of the lower-risk, lower-interest securities first, and then to the holders of the higher-risk securities. For investors, asset-backed securities are an alternative to investing in corporate debt. They are mainly used to finance roads, power, energy, ports, railways and many other projects. Asset-backed securities constitute a growing segment of the global capital markets. In recent years the ABS market has enabled companies and banks to finance a wide range of assets in the public debt market and has attracted a variety of fixed-income investors. Companies use securitization as borrowing instruments through the creation of Special Purpose Vehicles (SPV). An SPV is a subsidiary of an originating company whose books are run independently from those of the parent company. The parent company then transfers assets to the Special Purpose Vehicle which issues securities that are collateralized by the assets with the proceeds transferred back to the parent company.
To learn how to issue/invest in ABSs please Click HERE
A derivative is a financial instrument whose value is based on the performance of one or more underlying asset(s). They generally take the form of (legal) contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a point in time. The main use of derivatives is to transfer risk. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) or even an index of weather conditions, or other derivatives) offering the potential for a high return (at increased risk) to another. Derivatives can either be traded Over the Counter (OTC) or on an exchange. An Over the Counter transaction involves trades done directly between two parties without any supervision of an exchange as opposed to trading on an exchange characterized with rules upon which parties can engage. There are four most common types of derivative instruments:
A forward contract is a non-standardized agreement between two parties – a buyer and a seller – to purchase or sell an asset later at a price agreed upon at the time of signing the contract. It is thus traded over the counter.
This is a highly standardized agreement between two parties – a buyer and a seller – to buy or sell an asset at a future date. Prices are determined by the forces of demand and supply as the contracts are traded on an organized exchange. 10.3 Options Contracts An option bestows upon the holder the right, but not the obligation, to buy or sell the asset underlying the option at a predetermined price during or at the end of a specified period.
These are private agreements between two parties to exchange one financial instrument for another between parties concerned in the future according to a prearranged formula. The exchange takes place at a predetermined time as specified in the contract. They can be regarded as portfolios of forward contracts. The two commonly used swaps are interest rate swaps and currency swaps. A financial derivatives market will help primary dealers in the bond market better able to manage their risks, aid wider risk management for the whole economy and improve portfolio returns for institutional investors. This could be achieved by products such as foreign exchange, interest rate and equity-based derivatives.
To learn how to issue/invest in Derivatives please Click HERE
An exchange traded fund (ETF) is a pooled investment vehicle with shares that can be bought or sold throughout the day on a securities exchange at a market-determined price. Like a mutual fund, an ETF offers investors a proportionate share in a pool of stocks, bonds and other assets. Generally, the price at which an ETF trades on a securities exchange is a close approximation to the market value of the underlying securities that it holds in its portfolio. An ETF can be managed either passively or actively. Constituents of a passive ETF follow underlying indices or sectoral securities and are not at the discretion of a fund manager, whereas for active ETFs the fund manager would continuously make portfolio adjustments so as to maximize the returns. In the case of a commodity ETF, such an ETF invests in real commodities such as agricultural goods, natural resources and precious metals like Gold and Silver. It is also possible for a commodity ETF to focus on a single commodity, with holdings in a physical storage safe or to invest in futures commodities contracts. Furthermore, there are also other more complex commodity ETFs that track the performance of a commodity index (created out of pooled commodities or derivatives positions).
To learn how to issue/invest in ETFs please Click HERE
This refers to a type ofCorporate Bonds
financing mechanism that requires stakeholders to comply with the principles of Islamic Law (Sharia). The concept can also refer to the investments that are permissible under Sharia. Principles of Islamic Finance Islamic finance is based on principles that demarcate boundaries within which financial transactions should be conducted, highlighting the permissible and prohibited activities, products and/or services. The main principles are as below:
Paying or charging an interest – Islam considers charging of interest on lent funds as an exploitative practice that favours the lender at the expense of the borrower. This is therefore prohibited.
Investing in businesses involved in prohibited activities – Some activities considered as harmful to society such as producing and selling alcohol, Tobacco and its products or pork, are prohibited in Islam. These activities are forbidden, just as is investing in such activities.
Gambling/Speculation – Sharia prohibits any form of speculation or gambling because transactions done on this basis create wealth from chance on an uncertain event in the future, instead of productive activity.
Uncertainty – Islamic finance prohibits participation in contracts with excessive risk and/or uncertainty. According to Islamic rules, parties to a transaction should have complete information on the transactions thy get into. Transactions executed based on deceit, risk or fraud that might lead to destruction or loss are prohibited.
Material finality of a transaction – Each transaction be is related to a real underlying economic transaction or activity.
Profit/loss sharing – Parties that enter a contract in Islamic finance share profits/losses and risks associated to the contract on some pre-agreed terms.
The development of Islamic capital markets seeks to position Kenya as a Regional Islamic Financial Hub as envisioned in the 10-year Capital Markets Master Plan, a flagship project under Kenya’s economic blueprint, Vision 2030. The Authority seeks to create an enabling regulatory environment that will allow individuals to explore Shariah products as an alternative investment choice away from traditional investment channels.
To learn how to issue/invest in Islamic Finance products please Click HERE
A contract for the supply of a commodity traded on a spot market which is promptly delivered when the transaction is settled. A spot commodity market is a centralized market in which commodities are sold for cash and promptly delivered when the transaction is settled.
To learn how to issue/invest in Commodity Markets please Click HERE