Business Type: A derivatives exchange is a securities exchange licensed to list exchange-traded derivatives contracts such as futures, options, and swaps. These platforms facilitate risk management and speculation in financial markets. Regulated under the Capital Markets (Derivatives Markets) Regulations, 2015.
Licensing Requirements: Applicants must provide copies of memorandum and articles of association and rules governing operations that restrict the business to operating a derivatives market. Additional requirements include details of trading, clearing, and settlement systems, prescribed licensing fees, satisfactory bank references, and a business feasibility plan evaluated by experts in derivatives markets.
Government Fees: Application fees are approximately KES 300,000 to KES 500,000, with annual renewal fees ranging from KES 200,000 to KES 300,000.
Timeline: The approval process typically takes 90 to 120 days due to the complexity of derivatives products and the need for robust risk management systems.
Limitations: Derivatives exchanges must maintain sophisticated trading and clearing systems, ensure adequate margining and collateral management, implement position limits to prevent excessive speculation, comply with international derivatives standards, and provide investor education on derivatives risks.
Penalties: Non-compliance may result in suspension of specific derivatives contracts or entire exchange operations, license revocation, fines up to KES 5 million, public censure, and criminal prosecution for fraudulent activities.
Enforcement: The CMA monitors derivatives trading activities, reviews margin and collateral adequacy, conducts stress testing of clearing systems, and ensures compliance with international best practices for derivatives exchanges.