On 17 December 2020, the Nairobi Securities Exchange (the NSE) launched an Unquoted Securities Platform (the USP). The USP will function in accordance with its operational guidelines (the Guidelines) published on 11 December 2020. The Guidelines are available here.
The USP is an over the counter securities platform that utilises broker-dealer networks for the trade of securities. It has less stringent listing requirements and issuer obligations have opened a viable alternative for unlisted companies to access capital markets and long-term funding as issuers are enabled to raise finance through private placements. The USP also provides a boost to institutional and retail investors as it provides investors on the platform an accurate free-floating price of the securities of unlisted companies.
Key Considerations for Issuers
For admittance onto the USP, prospective issuers of the USP securities must meet the eligibility requirements of the Management Committee appointed by the NSE. The eligibility requirements are listed in the Guidelines, with the key requirements being, among others, the incorporation status of the issuer, articles of association amenable to USP securities and details of the board and management of the issuer. However, the eligibility requirements are non-exhaustive and the Management Committee may request further criteria as deemed necessary.
A prospective issuer will also need to appoint a registrar, to maintain a record of beneficiary holders of securities, and a custodian (licensed by the Central Bank of Kenya) for the safekeeping of USP securities, cash and other assets on behalf of the investors. Once the application documents have been submitted, the Management Committee will relay their decision to the prospective issuer within twenty-one (21) days.
If an application is accepted by the Management Committee, the issuer will have continuing obligations to the NSE, including disclosure requirements, which entail the disclosure of all material information in relation to the issuers business, financial statements and copies of notice of AGMs and EGMs. Additionally, issuers will be under an obligation to avoid the events of default under the Guidelines, such as: failure to distribute declared dividends and non-payment of interest of USP securities in accordance with the published timetable. Failure to meet continuing obligations may result in the suspension or expulsion of the issuer from the USP.
Key Considerations for Investors
To start trading on the USP, investors must be registered to an NSE authorised USP Trading Participant Agent (broker). In order to register with a broker, individual investors will be required to provide the broker of their choice with their full name, identity documents, contact details and passport (if they are foreign nationals). Investors that are entities will need to provide the broker with documents, such as, among others, the legal status and constitutive documents of the entity, board resolutions allowing the entity to invest and the identities of the directors.
Each investor authorised to trade on the USP is furnished with a unique USP securities trading account with a unique Trade Identification Code. The USP is open for trading on working days from 0900Hrs to 1500Hrs and investors can trade freely within this period. Trades made after the closing of the USP will be transacted at the next opening of the platform.
Investors will need to consider the maximum order size as trades over this limit will require prior disclosure with the NSE. In accordance with the Guidelines, trade volumes that exceed 20% of the total free float of an issuers USP securities will have to be disclosed to the NSE a day prior to the transaction.