allAfrica.com: Kenya: Tough Call for New Chief Executive (Page 1 of 1)

The bourse is gearing for a tough overhaul after the confirmation of the first-ever woman chief at the Capital Markets Authority.

If Ms Stella Kilonzo's six-month stint in an acting capacity, after former CEO Edward Ntalami opted to retire is anything to go by, she is cut out for the task. Sections of the male-dominated market are already fuming at her determined push to safeguard public interest.

Ms Kilonzo was confirmed on Tuesday by President Kibaki changing her status from acting to a substantive CEO at the market regulator, a position that plunges her into the deep end of a market crying out for reforms and reeling from an investor confidence crisis following the collapse of two brokerage firms.

"First she needs to demutualise (liberalise ownership) the Nairobi Stock Exchange, then protect its integrity and allow private trading between parties," said Mr Robert Bunyi, formerly with Renaissance Capital. "She has to make sure that the public trusts brokers."

Under her watch, CMA made history by suing Patrick Gakiavih, the managing director of the collapsed Nyaga Stockbrokers, on claims of fraud. The Authority has successfully applied to freeze his assets.

It is thought that she was the key proponent of the newly proposed regulations seeking to restructure brokerage firms and investment banks through separation of ownership and limiting management besides increasing their core capital.

To show her impatience with the poorly managed firms, she had proposed a six month compliance period for the rules that are expected to change the face of the capital markets.

However, stockbrokers are said to have lobbied to have the rules implemented over a period of five years but the then Finance minister Amos Kimunya surprised them with a three-year deadline in the budget.

Had lobbied

"The Authority had proposed six months but industry players suggested five years. If Mr Kimunya had given us the six months it would have been a disaster," Mr Job Kihumba, the executive director in charge of corporate finance and research at Standard Investment Bank said after the budget speech.

According to the amendments to the Capital Markets Act as contained in the Finance Bill 2008, Mr Kimunya barred individuals from holding more than 25 per cent of issued share capital in stock brokerage firms, investment banks and fund management companies as well as from holding management positions in the firms.

He gave firms whose shareholders hold a 25 per cent stake and senior management positions until June 30, 2011 to meet the requirements. It proposes to raise the core capital of stockbrokerage firms and investment banks from Sh5 million and Sh30 million to Sh50 million and Sh250 million respectively in the next three years.

The level of capitalisation of a business is considered crucial to its financial stability since management can draw from the capital account to cover for operational losses during difficult times. Parliament, which has to debate and pass the Bill for it to be enacted into law, could scuttle the proposals.

But even before then, the regulations have already run into headwinds with former Nairobi Stock Exchange chairman Jimnah Mbaru saying the minister erred by going for the players.

"This is wrong because in this industry, money is not an essential part. The important thing is the individual personality or brain power," Mr Mbaru said.

Mr Mbaru, who is a dominant shareholder, chairman and co-CEO of Dyer and Blair Investment Bank, argues that the minister should have strengthened market regulation. "The real issue is to strengthen CMA to put it in the same status and powers to those of Central Bank of Kenya," said Mr Mbaru.

Strike a balance

His successor at NSE, James Wangunyu shares the sentiment saying there is a need to strike a balance between the need for control and the future of the capital market.

"This is one business that thrives on a one on one relationship and if you reduce my holding, your reduce commitment," Mr Wangunyu says. He is also a majority shareholder at Standard Investment Bank where he is currently the managing director and wants to retire as its chairman.

Peterson Mwangi, the CEO of Afrika Investment Bank, concurs. "It is tough to meet all the regulations and we feel we would have done with more time, something like five years, to implement them," says Mr Mwangi whose firm has a Sh100 million core capital.

While opposed to the minister's interference with management and shareholding in the brokerage firms, Mr Mbaru's call for CMA's regulatory powers to be put at par with those of CBK could translate to a more stringent regime than what the minister prescribed in his speech.

Under the Banking Act, any individual shareholder with more than a 5 per cent stake cannot hold any management position.

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