December 2013 exam-CSIA -LAW AND REGULATIONS GOVERNING FINANCIAL MARKETS

Some candidates did not perform well in the following questions: Candidates did not perform well in the following questions:

QUESTION NO. 3
Candidates were unable to discuss the eligibility requirements for listing in the Fixed Income Securities Market Segment (FISMS).

These include:
• Incorporation status where the company to be listed is a body corporate limited by shares.
• Share capital where the minimum authorized capital of Sh. 50 million should be issued and fully paid up.
• Net assets should be more than Sh. 100 million just before the offer.
• Transferability of shares- All fixed income securities except for commercial papers are freely transferable.
• Financial records, of the past three years which are audited, must be availed to the regulator.
• Directors and management – the directors of the issuer must be competent persons without any legal encumbrances.
• Certificate of comfort - if the issuer is licensed to operate by any regulator in any country, the Authority shall obtain a certificate of no objection from the relevant regulators.
• Debt ratios -total indebtedness shall not exceed 400% of the company’s net worth as at the latest statement of financial position.
• Minimum size for listing of its fixed income security shall be Sh. 50 million. Candidates were also unable to outline the purpose for the establishment of the Central Depository Guarantee Fund (established for the purpose of ensuring settlement of trades through the central depository).

TYPES OF MONIES THAT CONSTITUTE THE CENTRAL DEPOSITORY GUARANTEE FUND INCLUDE:
• A contribution of Sh. 1,500,000 by such central depository agents.
• Such sums of money as accrued from interest and profits from investing the funds money.
• All penalties and fines imposed by the central depository.
• Levies of all financial transactions through the securities exchanges as approved by the Authority.
• Funds constituting the Nairobi Securities Exchange Investor Compensation Fund.
• Contribution from the revenue of the central depository as its board may from time to time determine.

QUESTION NO. 4
Candidates were unable to discuss the security measures that a stock dealer should put in place to ensure that the internet trading service is adequate for securities transactions.

These include:
• Confidentiality of information in such a way that information is only accessible to an authorized person or system.
• Controls to prevent noncompliance with rules and regulations leading to illegal transactions, fraud and malpractice or manipulation of data.
• Satisfactory arrangements and contingency plans are in place to ensure that the business can continue in the event of a large scale disruption.
• Ensure that orders placed through its systems are fairly allocated in accordance with the rules of the relevant securities exchange.
• Ensure that there is an effective audit trail to address risks arising from the opening, modification or closing of a client account, any transaction with significant financial consequence and any authorization granted to a client to exceed a limit.

Candidates were also unable to explain the following terms as used in contract law:

• Specific performance –This is defined as a court order which compels the defendant to perform his part of the contract as previously agreed without failure.
• Injunction - This is a stop order which can either be prohibitory or mandatory which the court restrains a party from doing or continuing to do a particular thing.
• Recession - this is a remedy granted by the court which seeks to restore the parties to the original position they were in before they entered into the contract.
• Rectification – This occurs when the contract between the parties has a mistake which prevents it from reflecting what the parties intended.