End in sight for refund headaches

August 25, 2008

, NAIROBI, August 25 – Investors wishing to participate in Initial Public Offerings (IPO) at the Nairobi Stock Exchange could soon be saved the agony of endless waits for refunds should proposed regulations be implemented.

The Bourse, together with the Capital Markets Authority (CMA) are considering the introduction of a guaranteed-voucher system, where investors would only make payments for shares after the allocation process has been done.

“There have been a lot of problems on the refunds process and this has troubled our minds as stakeholders and now that we have tried this system with the KCB rights issue and it worked very well we want to introduce this for all IPO’s,” said James Wangunyu, the Nairobi Stock Exchange (NSE) Chairman.

Previously, investors have been required to pay upfront as they applied for shares in an IPO and later receiving refunds – in the event of an oversubscription- of the excess money paid.

The proposed system would, however, see investors obtaining bank guarantees and presenting the same together with their share application forms through their brokers. Payments would only be effected after the allocation exercise.

Such a delivery versus payment system has only been available to institutional investors.

In the recently concluded KCB rights issue, bank guarantees were issued allowing for investors to only pay for what they had been allocated at the end of the IPO process. 

If these plans succeed, the Cooperative Bank IPO which is the next on line will be the first to benefit from this process.

Meanwhile, Wangunyu revealed that the NSE Board had approved the  reduction of the trading cycle from T+5 to T+3 and is intending to approach the Central bank of Kenya to offer the lead  and, where applicable, offer assistance of reducing the cheque clearing cycle from 4 to 3 days.

“The introduction of T+3, and securities lending and borrowing will enable retail and institutional investors to move in and out of a market position in the secondary market more easily,” Wangunyu explained.

The NSE, he said, is soon to establish an enforceable code of ethics for industry players in the next 6 months.

Currently the NSE operates as a mutualised organisation where trading rights and ownership vest in the same hands but the bourse is in the process of demutualisation, which will involve the separation of the trading rights from the ownership of the exchange.

The stock market has in the recent past been under the limelight over ethics issues, which have seen two brokerage firms collapse in the last twelve months.

“Besides complimenting the disciplinary guidelines, this will enhance the efficacy of already established NSE board supervisory activities,” said Wagunyu.

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