Business Type: A derivatives broker is a corporate body admitted to the membership of a derivatives exchange and authorized by the CMA to trade in derivatives contracts as an agent for investors (earning commissions) and on its own account. This category is a sub-category of market participants at exchanges like the NSE.
Licensing Requirements: Must be incorporated as a company, have a chief executive with at least five years of experience in buying, selling, or dealing in commodities, commodity derivatives, or other securities, possess necessary infrastructure including office space, equipment, and trained staff, have directors and key personnel who meet “fit and proper” criteria under section 24A of the Act, and maintain minimum net capital and net worth as determined by the derivatives exchange and approved by the Authority.
Government Fees: Application fees are approximately KES 100,000 to KES 150,000, with annual renewal fees of around KES 75,000 to KES 100,000.
Timeline: The approval process typically takes 60 to 90 days, subject to verification of experience, infrastructure, and financial capacity.
Limitations: Derivatives brokers must maintain adequate capital ratios, comply with position limits and margin requirements, implement robust risk management systems, segregate client funds from proprietary trading accounts, and provide clear disclosure of risks to clients.
Penalties: Violations may result in suspension from trading, license revocation, financial penalties, claims from the Investor Compensation Fund, and prosecution for fraud or misconduct.
Enforcement: The CMA conducts regular inspections, monitors trading activities, reviews client fund segregation, and ensures compliance with derivatives market rules.