GUIDANCE NOTE ON EXCHANGE-TRADED FUNDS (ETFs) IN KENYA

Exchange-Traded Funds (ETFs) have emerged as a dynamic investment avenue, providing investors with exposure to a diverse array of assets. The Capital Markets Authority (CMA) issues this guidance note to illuminate the path for ETFs in Kenya, ensuring regulatory adherence and bolstering market confidence.

Understanding ETFs:

  • ETFs are listed open-ended index or unit instruments traded on securities exchanges.
  • Comprising ordinary stocks, bonds, commodities, futures, or a blend of real assets, ETFs aim to mirror the price movement of underlying securities or commodities.

Versatility of ETFs:

  • ETFs can be structured as domestic or offshore products, broadening investment horizons for market participants.

Regulatory Clarity:

  • Amid any uncertainty, stakeholders are urged to seek guidance from the Capital Markets Authority (CMA).

Purpose of the Guidance Note:

  • This Guidance Note (PGN) serves as a comprehensive manual for the listing of ETFs in Kenya.
  • It identifies and addresses potential regulatory risks associated with ETF transactions, aligning with the principles of fair, efficient, and transparent capital markets.

Expanding Investment Options:

  • The introduction of the ETFs market in Kenya aims to provide investors with an alternative avenue for participating in capital markets.
  • ETFs enable investment in pooled securities or indirect exposure to commodities within a formal securities exchange framework.

Trading Mechanism:

  • Investors engage in buying and selling ETFs through securities exchanges.
  • Clearing or settlement is facilitated through existing Clearing and Settlement Infrastructure, ensuring a streamlined process.

Market Risks and Considerations:

  • The value of ETF investments is subject to market fluctuations.
  • ETFs do not guarantee capital protection; investors may not recover the entire invested amount upon selling.

Long-Term Investment Perspective:

  • Investors are encouraged to view ETFs as long-term instruments.
  • The design of ETFs supports the diversification of investment horizons, minimizing exposure to significant price fluctuations associated with securities trading.

Conclusion:

  • As Kenya enters the realm of ETFs, stakeholders are reminded of the importance of regulatory compliance, investor education, and a strategic investment approach.
  • The CMA’s guidance serves as a compass, guiding market participants toward fair, efficient, and transparent practices in the ETF landscape.

Embracing ETFs in Kenya aligns with global investment trends, providing investors with a regulated, accessible, and diversified means to navigate the capital markets. Investors are encouraged to approach ETFs with a long-term vision, leveraging their potential for sustained growth and risk mitigation.