By James Anyanzwa

Capital Markets Authority's Investor Compensation Fund (ICF) revenue reserves dropped by over 50 per cent during the financial year ended June 30, 2010.

This is likely to spell doom to investors of troubled stockbrokerage firms, who are still waiting for compensation.

According to the authority’s latest annual report, the fund’s revenues fell to Sh193 million, from the previous year’s Sh424.8 million.

It was prompted by hefty compensation to the collapsed Nyaga stockbroker’s investors and a drop in public issue fees.

Payments to investors of Nyaga stockbrokerage forked out Sh281.8 million of the fund’s revenues while earnings from public issues declined by 91 per cent to Sh12.8 million from Sh156.7 million in the previous year.

The kitty’s other sources of income shrank with revenues from investments and financial penalties dropping by 10 per cent and 29 per cent to Sh18.7 million and Sh6 million, respectively.

The fund often derives its income from interest accruing on income received from subscribers.

Other sources of funding include interest earned from investment of the funds held in the account and the financial penalties imposed on operators for non-compliance with CMA’s rules and regulations.

PECUNIARY LOSSES

The ICF has been allocated 10 per cent shareholding in a demutualised bourse, with expectations of selling 50 per cent of the shares to replenish its eroded reserves.

Rules and regulations governing the operations of the fund currently provides that every investor who suffers pecuniary losses after the collapse of a market intermediary only receives upto Sh50, 000 in compensation.

CMA reckons that the maximum compensation for claimants was set based on international best practice and availability of funds.

Other measures expected to protect investors include review of market intermediaries and phased implementation of risk-based supervision (RBS) of market intermediaries.

"The risk-based supervision assigns the highest priority and effort to areas of higher risk," said Stella Kilonzo, CMA’s chief executive officer.

It makes "efficient" use of authority’s resources with the focus moving from where all licensees are allocated equal time and resources to a situation where the authority’s resources are concentrated on risky firms.

A keen interest into the operations of the ICF came into the fore following the fall of four stockbrokerage firms in a span of three years.

This led to major realignments of the existing institutions through mergers and acquisitions.

Francis Thuo and Partners Limited, Nyaga Stockbrokers, Discount Securities and Ngenye Kariuki stockbrokerage firms have all gone under.

SAFEGUARD INTEGRITY

The authority is undertaking a comprehensive set of reforms aimed at building an efficient capital markets in the country.

A key component of these reforms have been focussed on measures to safeguard the integrity of the capital markets and strengthening of the investor confidence.

Stockbrokers and investment banks are expected to re-capitalise to the tune of Sh50 million and Sh250 million up from the current Sh5 million and Sh30 million, respectively.

The level of paid–up share capital for brokers and investment banks will not be allowed to fall below their lower limits, but could be raised depending with the authority’s prescription.

The equity market witnessed its highest ever traded turnover of Sh110 billion last year but with low activity from domestic retail investors.

The bond market, on the other hand witnessed its highest ever traded turnover of Sh493 billion mainly due to the introduction of automation in both KenGen bond trading and treasury bonds trading.

The bond market offered refuge to institutional and high net-worth individual investors that fled the volatile equity market.