Market Making Agreement (Kenya)

A Market Making Agreement in Kenya records the obligations the parties accept and the terms governing their arrangement.

A Market Making Agreement in Kenya distinguishes itself from a simple brokerage agreement or an underwriting agreement. A broker executes client orders but has no continuous quoting obligation. An underwriter assumes risk during the primary issuance of securities. A market maker, by contrast, maintains a continuous two-sided market — simultaneously posting both a price at which it will buy (bid) and a price at which it will sell (ask) — throughout agreed trading sessions, thus confirming that investors can transact at any time without waiting for a matching counterparty.

The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations 2002 and the Capital Markets (Conduct of Business) (Market Intermediaries) Regulations 2011, both issued under the Capital Markets Act Cap. 485A, govern the licensing and operational standards applicable to market makers in Kenya. A market intermediary seeking to act as a market maker must hold a valid CMA licence as a dealer and must comply with the minimum capital requirements prescribed under the Capital Markets (Licensing Requirements) (General) Regulations 2002.

The Nairobi Securities Exchange Plc, incorporated under the Companies Act No. 17 of 2015 and self-listed on its own exchange, operates pursuant to an exchange licence granted by the CMA under Section 7 of the Capital Markets Act Cap. 485A. The NSE Market Making Rules, issued by the NSE under its rule-making authority, set out the specific obligations of registered market makers, including minimum quote sizes, maximum bid-ask spreads, and minimum trading hours during which continuous quotes must be maintained.

The Securities and Exchange Commission of Kenya (now reorganised under the CMA) plays a supervisory role through the CMA's Market Surveillance Department, which monitors trading activity for compliance with the Capital Markets (Prohibition of Market Manipulation) Regulations. A market maker must confirm that its quoting activities do not constitute market manipulation under Section 35A of the Capital Markets Act Cap. 485A, which prohibits any conduct that creates a false or misleading appearance of active trading or that artificially influences the price of a listed security.

The Income Tax Act Cap. 470, administered by the Kenya Revenue Authority (KRA), treats gains from securities trading differently depending on whether the taxpayer is classified as a trader (business income) or an investor (exempt capital gain). A corporate market maker in Kenya will typically be treated as carrying on a trade, with all bid-ask spread income and trading gains subject to corporation tax at the rate of 30 per cent under Section 7 of the Income Tax Act Cap. 470.

A Market Making Agreement in Kenya is required whenever a CMA-licensed dealer is engaged by an issuer, the NSE, or an exchange participant to provide continuous two-sided quotes for a listed security, and the parties wish to formalise the obligations, compensation, and risk parameters of that arrangement.

A Market Making Agreement is needed when a company listed on the Nairobi Securities Exchange determines that its shares suffer from low liquidity, resulting in wide bid-ask spreads that deter institutional and retail investors. In such cases, the issuer may appoint a licensed market maker under the Capital Markets Act Cap. 485A to provide continuous price support, thereby improving the attractiveness of the stock to the investment community.

A Market Making Agreement is required when the NSE, in connection with the listing of a new security — such as an exchange-traded fund (ETF), a Real Estate Investment Trust (REIT) listed under the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations 2013, or a bond — requires the issuer or sponsor to appoint a registered market maker as a condition of the listing approval. Without a formalised Market Making Agreement, the NSE may decline to grant listing approval or may suspend the security's listing.

A Market Making Agreement is needed when a CMA-licensed dealer wishes to register as a market maker with the NSE and requires a contractual framework with the relevant issuer or counterparty that documents the spread obligations, quoting obligations, inventory limits, and compensation structure expected under the NSE Market Making Rules.

A Market Making Agreement is required when a stockbroker regulated by the CMA under the Capital Markets (Conduct of Business) (Market Intermediaries) Regulations 2011 seeks to formalise a liquidity provision arrangement for a fixed-income security listed on the NSE Fixed Income Securities Market Segment (FISMS), including treasury bonds issued by the National Treasury and government securities regulated under the Central Bank of Kenya Act Cap. 491.

Parties in Kenya should prepare a Market Making Agreement (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Kenya Market Making Agreement under the Capital Markets Act Cap. 485A must contain the following essential elements to be enforceable and compliant with CMA and NSE requirements.

Parties and Licensing Status: Full legal names and registered addresses of the issuer (or NSE) and the market maker; the market maker's CMA licence number and category; confirmation that the market maker holds the minimum capital required under the Capital Markets (Licensing Requirements) (General) Regulations 2002; and the Business Registration Service (BRS) registration number of each corporate party.

Designated Securities: A precise description of each security for which market making services are to be provided, including the ISIN number assigned by the Central Depository and Settlement Corporation (CDSC) under the Central Depositories Act No. 4 of 2000, the NSE ticker symbol, and the class or series of the security (ordinary shares, preference shares, bonds, ETF units, or REIT units).

Quoting Obligations: The minimum quote size (number of units or face value) that the market maker must post on the NSE trading system at any given time; the maximum permitted bid-ask spread expressed as a percentage of the midpoint price; and the minimum number of daily trading hours during which continuous two-sided quotes must be maintained, consistent with NSE Market Making Rules.

Inventory and Risk Limits: The maximum net long and net short position (inventory limit) that the market maker may hold in the designated security at any time; the procedure for rebalancing excess inventory; and the market maker's rights to suspend quoting during extreme market conditions or circuit breaker events declared by the NSE under NSE Rule 8.

Compensation Structure: Whether the market maker is compensated by a fixed fee, a per-transaction rebate, access to a reduced taker fee on the NSE, a combination of the foregoing, or an inventory financing facility provided by the issuer; payment frequency; and the invoicing and tax documentation requirements under the Value Added Tax Act No. 35 of 2013 and the Income Tax Act Cap. 470.

CMA Compliance and Reporting: The market maker's obligation to file periodic reports with the CMA's Market Surveillance Department; compliance with the Capital Markets (Market Manipulation) Regulations; maintenance of trading records for a minimum of 7 years as required by the Capital Markets Act Cap. 485A; and the issuer's right to request compliance certificates from the market maker.

Term, Suspension, and Termination: The initial term of the agreement; renewal provisions; circumstances in which the market maker may suspend quoting (including force majeure and system outages); and the consequences of termination, including the orderly wind-down of inventory positions under the supervision of the NSE and CMA.

Governing Law and Dispute Resolution: Governed by the laws of Kenya and subject to CMA jurisdiction; disputes to be resolved by arbitration before the Nairobi Centre for International Arbitration (NCIA) under the Arbitration Act No. 4 of 1995, or by the Capital Markets Tribunal established under Section 35H of the Capital Markets Act Cap. 485A. The forms-legal.com Kenya Market Making Agreement template includes all mandatory CMA compliance clauses and NSE quoting obligation schedules required under the Capital Markets Act Cap. 485A.

Additional compliance elements for a Market Making Agreement (Kenya) used in Kenya include: Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.