Embarking on the journey to issue an Exchange-Traded Fund (ETF) in Kenya involves a meticulous process, governed by the Capital Markets Authority (CMA).
The regulatory framework ensures transparency, compliance, and investor protection. Let’s delve into the key steps and considerations for obtaining approval for an ETF.
Initiating the Application Process:
- A prospective ETF issuer must submit a formal application to the CMA seeking approval to list or introduce the ETF. This application marks the initiation of the regulatory journey.
Notification of Decision:
- The CMA diligently reviews the application, considering various aspects such as compliance with regulatory requirements and market integrity. The ETF issuer is then notified of the regulatory decision in writing.
- In cases of rejection, the notification includes explicit reasons for the decision, providing clarity to the ETF issuer. Additionally, the resolution procedure and time limit are outlined, ensuring a transparent and fair process.
Legal Entity Requirement:
- To be eligible for ETF issuance, an ETF issuer must be a legal person. This stipulation ensures that the entity complies with legal and regulatory obligations.
Listing on a Securities Exchange:
- Upon receiving approval from the CMA, the ETF proceeds to the next phase – listing on a securities exchange. This step is subject to several critical conditions:
- Compliance with Exchange Rules:
- The ETF must align with the approved exchange’s Listing and Trading Rules. These rules comprehensively outline procedures, reporting frequency, and content. They highlight daily, weekly, monthly, quarterly, or annual disclosures, ensuring transparency.
- Freely Transferable Units:
- ETF units must be freely transferable, providing liquidity to investors and maintaining a smooth trading environment.
- Clearing and Settlement Infrastructure:
- Adequate infrastructural arrangements for the clearing and settlement of ETF trades must be established through an approved Central Securities Depository (CSD). This ensures the efficient and secure processing of transactions.
- Minimum Free Float Requirement:
- The ETF must maintain a minimum free float of 25% of the issued share capital in underlying assets. This ensures a balanced representation of assets under management (AUM) and can be subject to changes prescribed by regulatory authorities.
- Compliance with Issuance and Listing Timelines:
- The ETF issuer must adhere to the prescribed process and timelines for ETF issuance and listing as outlined in the exchange’s rules. This ensures a structured and regulated approach to market entry.
Securing approval for an ETF in Kenya involves collaboration between the ETF issuer, the CMA, and the listing exchange. The process underscores the commitment to maintaining a fair, transparent, and efficient capital market ecosystem. As Kenya embraces the era of ETFs, regulatory measures are in place to foster investor confidence and facilitate the growth of this innovative investment vehicle.
