Nairobi Stock Exchange

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The Nairobi Stock Exchange began in 1954 as an overseas stock exchange while Kenya was still a British colony with permission of the London Stock Exchange. Because under the colonial regime Africans and Asians were restricted from trading, it was difficult to convince native Kenyans of the importance of the exchange after independence.

History of the Nairobi Stock Exchange

1920s: In Kenya, dealing in shares and stocks started in the 1920s when the country was still a British colony. There was however no formal market, no rules and no regulations to govern stock broking activities. Trading took place on gentlemen's agreement in which standard commissions were charged with clients being obligated to honour their contractual commitments of making good delivery and setting relevant costs. At that time, stock broking was a sideline business conducted by accountants, auctioneers, estate agents and lawyers who met to exchange prices over a cup of coffee. Because these firms were engaged in other areas of specialization, the need for association did not arise.

1951: An Estate Agent by the name of Francis Drummond established the first professional Stock broking firm. He also approached the then finance minister of Kenya Sir Ernest Vasey and impressed upon him the idea of setting up a stock exchange in East Africa.

1953: The two approached London Stock Exchange officials in July of 1953 and the London officials accepted to recognise the setting up of the Nairobi Stock Exchange as an overseas stock exchange.

1954: The Nairobi Stock Exchange was constituted as a voluntary association of stockbrokers registered under the Societies Act. The business of dealing in shares was then confined to the resident European community since Africans and Asians were not permitted to trade in securities until after the attainment of independence in 1963. At the dawn of independence, stock market activity slumped due to uncertainty about the future of independent Kenya.

1963: In the first three years of independence marked by steady economic growth, confidence in the market was once again rekindled and the exchange handled a number of highly oversubscribed public issues.

1972: The growth was however halted when the oil crisis introduced inflationary pressures in the economy, which depressed share prices.

1975: A 35% capital gains tax was introduced in 1975 (suspended since 1985), inflicting further losses to the exchange which at the same time lost its regional character following the nationalisations, exchange controls and other inter-territorial restrictions introduced in neighboring Tanzania and Uganda. For instance in 1976 Uganda compulsorily acquired a number of companies, which were either quoted, or subsidiaries of companies quoted on the Nairobi Stock Exchange.

1980: The Kenyan Government realized the need to design and implement policy reforms to foster sustainable economic development with an efficient and stable financial system. In particular, it set out to enhance the role of the private sector in the economy, reduce the demands of public enterprises on the exchequer, rationalize the operations of the public enterprise sector to broaden the base of ownership and enhance capital market development.

1984: A Central Bank of Kenya study, "Development of Money and Capital Markets in Kenya" became a blueprint for structural reforms in the financial markets which culminated in the formation of a regulatory body 'The Capital Markets Authority' (CMA) in 1989, to assist in the creation of a conducive environment for growth and development of the country's capital markets.

1988: The first privatization through the NSE is successful with the government selling 20% stake in Kenya Commercial Bank.

1991: NSE was registered under the Companies Act and phased out the "Call Over" trading system in favor of the floor based Open Outcry System.

1994: The NSE 20-Share Index an all-record high of 5030 points on Feb. 18, 1994. The NSE is rated by the International Finance Corporation as the best performing market in the world with a return of 179% in dollar terms. Extensive modernization exercise is undertaken, including a move to more spacious premises at the Nation Center in July 1994, setting up computerized delivery and settlement system (DASS) and a modern Information Center. For the first time, the number of stockbrokers increases with the licensing of 8 new brokers.

1995: The Kenyan Government relaxed exchange in locally controlled companies subject to an aggregate limit of 20% and an individual 2.5%. These were doubled to 40% and 5% respectively in June 1995 budget to help encourage foreign portfolio investments. The entire Exchange Control Act was repealed in December 1995. Seven more stockbrokers are licensed, bringing the number to twenty from the original six (one which still survives) at its inception 1 954. Commission rates, which were once among the highest, were reduced considerably from 2.5% to between 2% and 1% on a sliding scale for equities and 0.05% for all fixed interest securities for every shilling.

1996: The largest share issue in the history of NSE, the privatization of Kenya Airways, comes to the market through which the stock exchange enabled more than 110,000 shareholders to acquire a stake in the airline. The Kenya Airways Privatization team is awarded the World Bank Award for Excellence for 1996 for being a model success story in divestiture of state-owned enterprises.

1998: The government expands the scope for foreign investment by introducing incentives for capital markets growth including the setting up of tax-free Venture Capital Funds, removal of Capital Gains Tax on insurance companies' investments, allowance of beneficial ownership by foreigners in local stockbrokers and fund managers and the envisaged licensing of Dealing Firms to improve market liquidity. The enactment of the CDS Act is also expected to clear the way for the setting up of the long overdue Central Depository System.

1999: Kenya adopts the International Accounting Standards (IAS) as the local Accounting Standards with effect from January I, 1999.

2000:

*June 2000:In the budget for the financial year 2000/2001, the Government provided the following additional incentives to capital markets investments:
*Withholding tax on dividend income has been reduced from a high of 15% to 7.5% (for foreign investors) and 5% (for local investors). It has also been made the final tax.
*New and expanded share capital by listed companies or those seeking listing will now be exempt from stamp duty.
*Transfers of assets to a special purpose vehicle for the purposes of issuing asset backed securities will be exempt from stamp duty and VAT.
*Expenses incurred by companies in having their financial instruments rated by an independent rating agency are tax deductible.
*Registered and approved venture capital funds now enjoy a 10-year tax holiday.
*Income accruing to registered collective investment schemes is exempt from tax. Dividends are subject to 5% withholding tax. Interest received from deposits, government debt securities or corporate debt securities is subject to a withholding tax of 15%. Gains arising from sale of shares are exempted from tax. These are the final tax.
*Licensed dealers enjoy tax benefits, as long as they turn their portfolios according to laid down guidelines.
*In order to encourage the transfer of technology and skills, foreign investors are now allowed to acquire up to 49% of local brokerage firm; and up to 70% of local fund management companies.

*July 2000:Central Depository System. The Central Depository System (CDS) Act was passed by Parliament in July 2000, and assented to by the President in August 2000.

*Regulatory issues. The Capital Markets Authority Act was amended and renamed the Capital Markets Act.

*August 2000:
*CFC Financial Services the first institution to be licensed dealer on the Nairobi Stock Exchange and commenced operations.

2001:

*February 2001
*Fundamental reorganization of Kenya's capital markets into four independent market segments: the Main Investments Market Segment (MIMS), the Alternative Investments Market Segment (AIMS), the Fixed Income Securities Market Segment (FISMS) and at a later stage a Futures and Options Market Segment (FOMS).

*June 2001
*In the budget for the financial year 2001/2002, the Government provided the following additional incentives to capital markets investments:

To encourage more listings on the Nairobi Stock Exchange, newly listed companies approved under the Capital Markets Act will be taxed at reduced corporation tax rate of 27% as compared to the standard rate of 30%. This will be for of three years following the date of listing. However, such companies should offer at least 20% of their share capital to the public; and The companies that apply and are listed shall get a tax amnesty on their past omitted profits subject to them making a full disclosure of their incomes and assets and liabilities during the year commencing at the date of listing and undertaking to, henceforth, pay their due taxes in full.

2002:

*17 April 2002
*The CMA announced the approval of the new NSE trading and settlement rules with amendments:
*Block Trades: Revised upwards from Ksh. 3 million to Ksh. 50 - 200 million. The block trade rules now apply to trade values of above Ksh. 50 million but less than Ksh. 200 million.
*A liberalized commissions regime.

*26 July 2002
*New Foreign Investor Regulations:
*There is a 25% minimum reserve of the issued share capital for locals while the balance of the 75% becomes a free float for all classes of investors.
*The 25% minimum reserve also applies during initial public offerings (IPOs) and Government of Kenya privatisations.
*On the capital markets, there are now three categories of investor; local, East African and foreign.

*5 August 2002
*Shareholder Agreement for the Central Depository and Settlement Corporation (CDSC)
*5 August 2002, the Nairobi Stock Exchange, the Capital Markets Authority of Kenya, the Association of Kenya Stockbrokers, the CMA Investor Compensation Fund, and 9 institutional investors through the Capital Markets Challenge Fund have come together as investors in the Central Depository and Settlement Corporation (CDSC). The CDSC being the legal entity that will own the clearing, settlement, depository and registry system of the capital markets will be automated and operated.

External links

[walapa.com - track daily information about nairobi stock exchange stocks Financial Statistics]

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