Legal Alert | Kenya | Capital Markets Regulator Reigns in Insider Trading


Effective 18 January 2019, The Capital Markets Act, Cap 485A was amended to incorporate additional offences. As stated in proceedings before Parliament when the proposed amendment was debated, the essence was to focus on persons who take advantage of capital markets when they have insider information.

At the end of 2018, the Capital Markets Authority (CMA) and the National Council for Law Reporting launched the Digest of Decisions on Capital Markets (Case Digest), which features 27 prominent capital markets cases that have been decided over the years. These cases cover several aspects of the regulation of capital markets in Kenya.

The offence of insider trading

Some of the cases covered in the Case Digest relate to insider trading. In recent weeks, insider trading has been in the limelight with the CMA investigating the alleged tip off of specific investors who bought millions of shares in an oil marketer based on takeover information that was not in the public domain. We understand that the investigations are ongoing.

The offence of insider trading is committed when a person buys or sells listed securities based on information not in the public domain and which information, if it were made public would likely have a material effect on the price of the securities. Despite a few people being charged with the offence over the years, the CMA is yet to obtain any conviction.

The additional offences in the amended legislation are:

i) Front-running: where a person in a market intermediary with insider information on a client order, takes advantage of the price differential by effecting orders on his/her own account in order to gain an advantage before the client’s order is executed. The offence also captures a person who facilitates the commission of the offence.

ii) Obtaining gain by fraud: where a person, on his own action or through conspiracy with another uses deceit, intentional concealment, omission or any fraudulent means to obtain financial or personal gain from the public, an issuer of securities or a regulated person.

The CMA has further implemented a rewards system under which a person who provides “new and timely information” to the CMA that leads to the recovery of ill-gotten sums may be rewarded. The reward would be 3 percent of the amount recovered subject to a maximum of KES 5 million. In relation to the rewards system, and to ensure the system is not abused, the following offences have also been prescribed:

i) Colluding with an officer of the CMA to collect a reward;

ii) An officer aiding another person to get and provide information in order to get a reward; and

iii) Providing false information in order to obtain a reward.

Both categories of offence attract fines and jail terms as follows:

If a person is found guilty and convicted of the offence of front-running or obtaining gain by fraud, a fine of not more than KES 5 million will be imposed ­on the person or they may be imprisoned for a term of two years and ordered to pay twice the amount of the gain or loss avoided.  In the case of a company, a fine of not more than KES 10 million and payment of twice the amount of the gain made or loss avoided will be imposed on the company upon conviction.

A person who is found guilty of the various offences relating to the rewards system will be liable to a higher penalty and upon conviction, a fine of not more than KES 5 million will be imposed or imprisonment for a term of not more than five years.


The CMA has stepped up its policing role on insider trading by among other things, closely monitoring compliance, pushing through changes in law and taking appropriate action where necessary. Consequently, capital markets stakeholders, including investment advisers, stock brokers, fund managers, issuers of securities and listed companies need to ensure proper handling of inside information. It is important that these entities have well drafted insider trading policies and that there are adequate internal monitoring and reporting procedures to avoid liability.

Should you have any queries or need any clarifications with respect to the above, please do not hesitate to contact Rosa Nduati-Mutero.

Rosa Nduati-Mutero
ALN Kenya | Anjarwalla & Khanna

The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.