Collapse of stock brokerage firms in kenya


Garam Investments, the auctioneer, on Friday confirmed that it had sold the two parcels of land that were registered under Nyaga Stockbrokers. One of the two parcels of land had a three-bedroomed house and a single storey residential house on it while the other had a single storey building and a light industrial complex. They were sold to clear debts that Nyaga Stockbrokers owed Consolidated and Prime banks at the time of collapse.

Though the Capital Markets Authority CMA is not the primary recipient of the proceeds of the auction, the market watchdog said it was monitoring the transactions closely for any residual funds to compensate investors. Rich investors who bought shares at the Nairobi Stock Exchange through Nyaga Stockbrokers lost an estimated Sh million when CMA announced in September last year that it could only pay investors to the maximum legal limit of Sh50, from the Investor Compensation Fund.

More than 90 per cent of 27, Nyaga clients received full compensation for their losses, but an estimated 2, who had invested more than Sh50, in the stock market through the broker walked away with only a fraction of their claims. CMA chairman Micah Cheserem promised investors who did not get full compensation additional payments when seized assets belonging to Nyaga Stockbrokers managing director and principal shareholder Patrick Gakiavih is sold. Mr Gakiavih has been charged with the alleged theft of Sh million from his brokerage firm and his personal assets worth millions of shillings have been frozen.

This amount is, however, likely to have been significantly consumed by claims from Nyaga Stockbrokers, which the regulator put at Sh million in September last year. A fourth broker, Ngenye Kariuki Stockbrokers, is under statutory management after it fell into financial difficulties.

The CMA has since brought into force a series of reform measures and imposed new capital requirements on market intermediaries aimed at restoring their stability to win back investor confidence.

As a result there has been under subscription of initial public offer and right issues for instance in the case of Cooperative Bank of Kenya, British American Insurance and Kenya airways. This is a clear sign of deterioration in performance and loss of goodwill in this important institution. The main objective of the study was to investigate the relationship between stock market development and economic growth. Stock market development indicators were market capitalisation, total shares traded and equity turnover.

The specific objectives were to examine the effect and direction of stock market capitalisation on economic growth, to determine the effect of total value of shares traded on economic growth, to establish how the equity turnover in the securities market had influenced economic growth and to examine the effect of investment and university enrolment on economic growth. The study carried an empirical investigation using quarterly time series data for the period to , to establish the short run and long run effects of each indicators of stock market development on economic growth.

ECM was used to estimate the short run dynamics. The short run analysis revealed that investments, market capitalisation and equity turnover had positive effect on economic growth while total value of shares traded, equity turnover anduniversity enrolment had positive effects on economic growth in the long run. The result implies that it is pertinent to increase investment within the economy because in the short run investments, showed a strong and positive relationship with GDP.

More investment in the economy means higher capital formation. High capital formation in turn calls for human capitalto be in place for it to be fully utilised depending on the level of technology employed by the economy. In addition, the results showed that there was a positive long run relationship between human capital and GDP.