CS Intermediate Level

Financial Markets and Specialised Institutions flashcards

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What five functions do financial markets perform?

Price discovery: bringing buyers and sellers together to establish a fair price. Liquidity: letting holders convert securities to cash relatively quickly. Capital allocation: channelling savings to their most productive use. Risk transfer: moving risk, through derivatives and insurance, to those most willing to bear it. Information aggregation: prices reflect available information about an asset's prospects.

What are the four routes for offering shares to the public?

Public offer: an offer to the public at large, needing CMA approval and full prospectus disclosure. Listing by introduction: admits shares that are already widely held to trading, without a fresh offer of new shares. Offer by tender: investors bid their own price, and the final price is set from the bids. Rights issue: new shares offered to existing shareholders in proportion to their holding.

What is the difference between immobilisation and dematerialisation of securities?

Immobilisation: physical certificates are deposited with the depository and no longer move on transfer, though they still technically exist. Dematerialisation: the securities exist only as electronic entries, with no physical certificate at all, the standard form for actively traded listed securities today.

What does it mean that the Nairobi Securities Exchange is self-listed?

The NSE demutualised and listed its own shares on its own exchange, converting from a member-owned association into a shareholder-owned public company. It is both the venue for trading and one of the securities traded on it.

What is insider trading, and why is it prohibited?

Dealing in a security while in possession of material, non-public information likely to affect its price. It is prohibited under the Capital Markets Act because it lets an informed party profit unfairly at the expense of the rest of the market, undermining fair pricing.

Which Kenyan regulator oversees each part of the financial sector?

CMA: capital markets, securities exchanges, listed companies, collective investment schemes. CBK: banks, mortgage finance companies and monetary policy. RBA: pension schemes. IRA: insurance companies and intermediaries. SASRA: deposit-taking SACCOs. UFAA: unclaimed financial assets. KDIC: deposit insurance for bank depositors. FRC: anti-money laundering and counter-terrorism financing reporting.

What do the Proceeds of Crime and Anti-Money Laundering Act and the Prevention of Terrorism Act require of financial institutions?

Identify and verify customers. Monitor transactions for suspicious activity. Report to the Financial Reporting Centre, Kenya's financial intelligence unit.

How are pension schemes in Kenya regulated and governed?

Regulated by the Retirement Benefits Authority under the Retirement Benefits Act. Governed by trustees, who owe fiduciary duties to scheme members. Members' contributions are invested within RBA investment guidelines.

What separates the money market from the capital market?

Maturity. Money market: short-term debt instruments of a year or less, such as Treasury bills and commercial paper. Capital market: longer-term instruments, equities and bonds.

What is the difference between suspension and delisting of a security?

Suspension: a temporary halt to trading, reversible once the underlying concern is resolved, for example pending clarification of material information. Delisting: permanent removal from the exchange, voluntary (the issuer chooses to leave) or involuntary (for serious or persistent non-compliance).

What is the difference between the primary and the secondary market?