Commodity exchange and commodity broker licensing in Kenya operates under the Capital Markets (Commodity Markets) Regulations, 2020 (Legal Notice 41 of 2020), which creates two categories relevant to anyone entering this space: the commodity exchange itself, which operates the trading platform, and commodity brokers, the intermediaries who trade on behalf of clients through that exchange. The two serve different functions and carry different requirements, though both sit under the same instrument and both need the Capital Markets Authority (CMA) to be satisfied under section 29 of the Capital Markets Act before it grants a licence or approval. Section 23 of the Act prohibits carrying on these businesses without the required licence or approval.
Commodity Exchange: Market Infrastructure
A commodity exchange licence is for the entity operating the trading venue. The application is made in Form A in the First Schedule and must be accompanied by the memorandum and articles of association, the rules governing the exchange’s operations, details of the trading, clearing and settlement systems proposed, the application fee in the Second Schedule, satisfactory bank references, and a business feasibility plan evaluated by an entity with a proven track record in commodity markets or their development, establishment or management.
The business plan itself should cover the nature of the business, target market and clientele, business model, objectives, outsourcing arrangements, key conduct risks and management structure. Board composition is assessed under the Act, the Commodity Markets Regulations and the CMA’s corporate governance rules for market intermediaries.
Commodity Exchange Capital Requirements
The Regulations do not fix a single capital figure for an exchange. The applicant must satisfy the minimum liquid net worth requirements in the Regulations, which are expressed by reference to the exchange’s operating costs: the minimum is one half of the estimated gross operating costs for the next twelve months, or such other amount as the Authority specifies. The applicant must also show financial capacity, functional expertise and infrastructure to run a fair and efficient exchange, and must have a minimum amount, determined by the Authority by notice, in a settlement guarantee fund before trading begins.
Commodity Brokers: The Intermediary Function
A commodity broker applies in Form B. An applicant must be a company limited by shares and have a chief executive who is a fit and proper person under section 24A of the Act with at least five years’ experience in the relevant commodity or securities business. Unlike the exchange, a broker does not build trading infrastructure; instead it must evidence net capital and net worth at the level set by the commodity exchange it will operate through and approved by the CMA. That is a different structure from the fixed thresholds in online forex licensing: the figure is set by the exchange, so it can vary depending on which commodity exchange a broker intends to join.
A broker that is already a market intermediary of another securities or derivatives exchange must also undertake to allocate and segregate net capital to support its commodity exchange activities, and keep it maintained at all times.
Shared Governance and Compliance Requirements
Both categories need disclosure of shareholding structure, a board that meets the CMA’s governance standards, a board charter covering strategic oversight, risk management, conflicts of interest and delegation of authority, and finance and audit personnel with recognised professional qualifications. Brokers additionally need a written anti-money laundering and counter-terrorism financing policy consistent with the CMA’s guidance and declarations that shareholders, directors and key personnel have not defaulted on dues at a commodity exchange clearing house. Applicants should map their board and personnel against the current CMA checklist before filing.
Why the Two-Licence Structure Matters in Practice
Anyone entering Kenya’s commodity markets must be clear from the outset about which licence their business model requires. A business that will operate the trading platform, set market rules and run clearing and settlement needs the exchange licence and the infrastructure investment that comes with it. A business that intends to act as intermediary for clients on an exchange someone else operates needs the broker licence, and its net capital will be set by whichever exchange it joins. A prospective broker should therefore confirm the figure with its chosen exchange before finalising its capital-raising plan.
Application and Annual Fees
The Second Schedule sets a non-refundable application fee of KSh 10,000 for both categories. The annual regulatory fee is KSh 2,500,000 for a commodity exchange and KSh 50,000 for a commodity broker. Fees can be revised, so check the current schedule before budgeting.
Citing the Correct Year
The CMA’s own broker checklist has at times referred to the governing instrument as both the “2019” and “2020” Commodity Markets Regulations. The Regulations were gazetted as Legal Notice 41 of 2020 in Kenya Gazette Vol. CXXII, No. 58 on 3 April 2020, so “2020” is the correct citation.
How This Fits the Wider CMA Framework
Commodity markets sit alongside the CMA’s securities and derivatives regulation as a distinct structured markets regime. Coffee has its own dedicated exchange regime; see our guide to coffee exchange licensing in Kenya, and for the wider picture our overview of Capital Markets Authority licensing in Kenya.
How We Can Help
Clay & Associates Advocates advises applicants on both commodity exchange and commodity broker licensing, including governance documentation, business plan structuring, and the net capital arrangements between a broker and its chosen exchange. We work from the Regulations and the CMA’s own checklists directly. Our regulatory and compliance practice can assist; please contact us to discuss an application.
Sources: Capital Markets Act, sections 23 and 29, Kenya Law; Capital Markets (Commodity Markets) Regulations, 2020 (Legal Notice 41 of 2020), Kenya Law.
Frequently asked questions
What is the difference between a commodity exchange and a commodity broker licence?
The exchange operates the trading venue and market infrastructure; the broker is an intermediary trading for clients through an exchange.
Who sets a commodity broker’s minimum net capital?
The commodity exchange the broker will operate through sets the figure, and the CMA approves it.
What are the annual regulatory fees?
The Second Schedule sets KSh 2,500,000 for a commodity exchange and KSh 50,000 for a commodity broker, plus a KSh 10,000 application fee.
Does coffee trading need a separate regime?
Coffee has its own dedicated exchange framework, covered in our coffee exchange licensing guide.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
