STATEMENT BY THE DEPUTY PRIME MINISTER AND MINISTER FOR FINANCE ON COMPENSATION OF CLIENTS OF NYAGA STOCK BROKERS LIMITED

UNDER STATUTORY MANAGEMENT SEPTEMBER 24, 2009 1. In February this year, shortly after assuming office as the Minister for Finance, I outlined several reform measures aimed at restoring investor confidence in our capital markets. I am happy to announce today that we are making good progress in this direction.
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2. One of the critical measures we identified as a key priority to win the confidence of investors back to the market was the compensation of investors who lost their funds through Nyaga Stockbrokers Limited and Discount Securities Limited, both of which are currently under statutory management. 3. As you may be aware, protection of investors is critical to sustained growth of securities markets world-over. To safeguard the interests of investors, an Investor Compensation Fund was
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established under the Capital Markets Act sometime back in the past. The Fund is specifically meant to compensate investors who suffer losses resulting from failure of a licensed stockbroker or dealer, to meet his contractual obligations. Currently, the Fund is managed by the Capital Markets Authority but steps are being made to operationalize the Investor Compensation Fund Board to take over the administration of the Fund. 4. To ensure investors who lost their funds through Nyaga Stockbrokers Limited do not suffer any longer, the Capital
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Markets Authority has worked together with the appointed statutory managers of CMA and NSE to identify and verify all claims. In this regard, I wish to announce that adequate measures have been taken to pay from the Investor Compensation Fund all genuine claims within the statutory maximum of Kshs.50, 000 per every investor. These investors will receive cheques through their respective postal addresses and can present them for payment from next week. I am happy to report that out of the 27,000 investors who lodged genuine claims, over 90 % of the claimants, who are indeed small
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investors, will be fully compensated. It is our objective to ensure that no investor loses his/her money through nonperformance of contractual obligations by capital market players. We are taking the necessary steps to ensure that all the assets lost are recovered from the directors of the involved companies. 5. This is the first time ever that investors are being compensated from the Investor Compensation Fund. With regard to the maximum compensation limit of Ksh. 50,000, I would like to point out that this is in line with the
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global practice. I would also like to reiterate that the funds we are using to effect this compensation are not from the Exchequer but rather from the capital markets Investor Compensation Fund. 6. Let me also take this opportunity to appraise you on the progress we are making in implementing other reform measures that I had singled out in February 2009 as key to restoring capital markets integrity and investors confidence. These are as follows: First, I have since reconstituted the Board of
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the Capital Markets Authority, now under the Chairmanship of Mr. Micah Cheserem under whose stewardship we have witnessed a number of bold reform measures in the capital markets. Second, we have initiated the demutualization process of the Nairobi Stock Exchange. The process is being managed by a Steering Committee headed by the Capital Markets Authority with the NSE as Vice Chairman and representatives from all the
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key stakeholders. I am informed that the necessary draft Bill to bring a demutualised Nairobi Stock Exchange to fruition, once legislated, is ready. 7. I am glad to note that the Capital Markets Authority is making notable progress in enshrining transparency within the capital markets. In particular the recent publication of accounts by intermediaries is worth highlighting as it has resulted in increased market confidence. I am also informed that cases of fraud in the market, is reducing as a result of
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the creation of the Capital Markets Fraud Investigation Unit (CMFIU). 8. Finally, I wish to underscore the commitment of the Kenya Government to continue undertaking further reforms that will deepen our capital markets. We are convinced that to achieve sustained growth and lasting reduction in poverty, the targets which we have set for ourselves in the context of Vision 2030, we must have a very vibrant capital market to raise the funds needed to finance the investment implied by those development targets.
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