LEGAL NOTICE NO.

THE CAPITAL MARKETS ACT (Cap. 485A) IN EXERCISE of the powers conferred by the section 11 (3) (f), 12 and 20 of the Capital Markets Act, the Capital Markets Authority makes the following Regulations THE CAPITAL MARKETS (DEMUTUALIZATION OF THE NAIROBI STOCK EXCHANGE LIMITED) REGULATIONS, 2011
Citation.

1. These Regulations may be cited as the Capital Markets

(Demutualization of the Nairobi Stock Exchange) Regulations, 2011.

2. In these Regulations, unless the context otherwise requires

Cap. 485A.

Act includes a reference to the Capital Markets Act, Regulations and guidelines made thereunder; Authority has the meaning assigned to it under the Act;

Cap. 486.

company limited by guarantee has the meaning assigned to it under the Companies Act; company limited by shares has the meaning assigned to it under the Companies Act; Demutualization means the separation of the ownership of the Exchange from the right to trade on such Exchange including the introduction of independent and transparent governance structures and includes all related processes to achieve this objective; Demutualization application means the application made under Regulation 4; Demutualized exchange means the Exchange following the completion of demutualization; Exchange means the Nairobi Stock Exchange Limited registered under the Companies Act a company limited by guarantee; member means a person who is recognized as a member of

supra

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the Exchange in accordance with its constitutive documents and rules; re-registration means the process prescribed under Section 18 of the Companies Act for a company already registered as a limited company to re-register under that Act; rights means all rights, powers, privileges and immunities, whether present or future, actual or contingent or prospective, and whether enforceable in Kenya or elsewhere; Transitional board of directors means the board of the demutualized exchange pending the appointment of a board in accordance with these Regulations.
Demutualization.

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3. The Exchange shall not undergo a process of demutualization unless it has obtained a written approval of the Authority. 4. (1) The Exchange shall make an application to the Authority for approval to operate as a demutualized entity. (2) An application under paragraph (1) shall be in accordance with Regulation 3 of the Capital Markets (Licensing Requirements)(General) Regulations 2002 and shall be accompanied by the following additional documents (a) a valuation report of the Exchange; (b) the proposed authorized and paid-up share capital of the demutualized exchange with the number of shares to be issued; (c) the names of members of the Exchange proposed to be the initial shareholders of the demutualized exchange and the number of shares to be allotted to each shareholder; (d) the number of shares to be allotted to and held directly or indirectly by the Government of Kenya and the Investor Compensation Fund in the public interest being not less than twenty per cent of the total shareholding thereof; (e) the number of shares calculated under subparagraph (c) that would otherwise have been

Application for Demutualization.

LN. No. 125 of 2002.

allocated to members of the Exchange that have not restored normal operations after having recourse to the Investor Compensation Fund or being subjected to Statutory Management by the Authority and the identification of the entity to whom the same shall be allocated; (f) the proposed memorandum and articles of association of the demutualized exchange in compliance with these Regulations; (g) the names of the Transitional Board of directors and the timeline proposed for the appointment of the board of the demutualized exchange in accordance with these Regulations; (h) the proposed names of directors of the demutualized exchange to be appointed at the first General Meeting; (i) the proposed plan for the independent management of the commercial and regulatory functions of the demutualized exchange and timelines for implementation of necessary structures to ensure the functional and physical separation of commercial and regulatory functions; (j) a detailed five year business development plan for the demutualized exchange together with the capital expenditure estimates and the sources of finance for the five year period; (k) the manner in which the rights and liabilities of the existing members will be treated in the demutualization; (l) the procedure for the allocation of shares to the shareholders identified under subparagraphs (c), (d) and (e); (m) a directors declaration in respect of the matters set out under Regulation 8; (n) the proposed timelines for the completion of
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operational manuals to guide the self-regulatory functions of the demutualized exchange detailing the scope of regulatory functions to be performed by the demutualized exchange; (o) the proposed rules of the demutualized exchange; and (p) the last audited financial statements of the Exchange. (3) The Authority may, in writing, require the Exchange to provide any other information which the Authority may require.
Procedure by Authority upon receiving application

5. (1) The Authority may, if it considers necessary, in the interest of the capital markets, direct appropriate amendments to be made to any submissions made under Regulation 4. (2) The Authority shall, if the Exchange fails, within a specified time, to comply with(a) any or all the requirements under Regulation 4; or (b) any direction to amend such submission,; subject to giving the Exchange an opportunity to be heard, undertake or decide, as the case may be, the manner of compliance or effecting any amendment to any of the requirements listed in Regulation 4 and communicate the same to the Exchange. (3) The Authority shall, within thirty days of receipt of all the information submitted by the Exchange under Regulation 4, subject to any amendments directed under subparagraph (1) above, approve the demutualization application and identify any conditions relating to or in connection with any of the requirements under Regulation 4.

Resolutions of the demutualized exchange.

6. The Exchange shall, within thirty days of approval under Regulation 5 (3), or such period as the Authority may approve in writing, ensure that(a) the Exchange is re-registered as a company limited by shares under Section 18 of the Companies Act; and

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(b) it adopts the following resolutions in addition to any other resolutions as may be required under paragraph 5(3)(i) adopt in a meeting of its members, by a special resolution, the approved memorandum and articles of association; (ii) adopt the proposed allotment of shares to the members approved to be the initial shareholders in the approved numbers of the demutualized exchange; adopt and appoint the directors approved under paragraph 5(3) as the board of the demutualized exchange; adopt the approved paid up share capital; and such other resolution as may be required.

(iii)

(iv)

(v)

Alteration of memorandum and articles of association and changes in Director Conditions on Demutualization

7. The demutualized exchange shall not amend its memorandum and articles of association or change its directors without the prior written approval of the Authority.

8. The Exchange shall, as a condition of seeking an approval for demutualization, undertake that any proposed corporate restructuring for purposes of demutualization shall not(a) render defective or affect any legal, disciplinary or other proceedings that could have been continued or commenced by or against it prior to the demutualization notwithstanding any change in its name or status in consequence of its restructuring; (b) affect any instruction, order, approval, notification, direction, act, requirement,

condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restriction or decision, or other document however called, made, given or done by the Exchange prior to its restructuring, under, in accordance with or by virtue of the provisions any applicable written law, and such instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restrictions or decision, or other document applies until it is amended, repealed or until it expires; (c) affect any instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restriction or decision, or other document howsoever called, made, given or done by the Authority to or against the Exchange prior to its restructuring, under, in accordance with or by virtue of the provisions in the securities laws, the regulations or any applicable written law, and such instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restrictions or decision or other document, shall remain valid, binding and have effect in relation to the persons to whom such instruction, order, approval, notification, direction, act or decision, or other document applies until it is amended repealed or until it expires; (d) affect any right, privilege, obligation or liability acquired or accrued under the provisions of the securities laws, the regulations or any applicable written law prior to the restructuring date and shall not affect any legal, disciplinary or other proceedings, remedy, investigation or inquiry may be instituted; continued or
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enforced after its demutualization; (e) affect any action that has been or may be given by the Exchange for any breach of its rules before such restructuring; and (f) affect any rights and obligations of Exchange or render defective any legal proceedings by or against the Exchange.
Demutualization

9. The Exchange shall stand demutualized upon the expiry of the term specified in the approval of the Authority in accordance with Regulation 5(3) and subject to the fulfillment of any conditions attaching thereto. 10. The members of the Exchange shall reduce their cumulative shareholding in the demutualized exchange to less than forty percent in less than three years from the date of demutualization or such earlier date as the Authority may approve; 11. The demutualized exchange shall, within one year of the reregistration, implement the plan submitted under Regulation 4(2)(i).

Reduction in shareholdings

Implementation of SelfRegulatory functions Winding up

12. The demutualized exchange shall not commence any proceedings for winding up following its demutualization, whether voluntary or otherwise, without the prior written approval of the Authority.

Made on.,2011

KUNGU GATABAKI, CHAIRMAN, CAPITAL MARKETS AUTHORITY.

STELLA KILONZO, CHIEF EXECUTIVE, CAPITAL MARKETS AUTHORITY.