The membership of the stock exchange entitles a company to transact the business in the listed securities. Only representatives can enter the floor of the stock exchange to transact the business. In Kenya a member is required to pay certain fees in the form of entrance fee, membership deposit and annual subscription. The company is required to obtain license from the Capital Market Authority. Nairobi Stock Exchange (NSE) in Kenya is still small and somewhat speculative, currently only about 50 companies are quoted as there are some restrictions for the listing of the companies in the stock market. For a company wishing to sells its stock to the public has first to be listed in the stock exchange.
There are a certain procedures that a company should follow so as to be listed in the securities exchange. These procedures are as follows,
- The process of going public\going for an IPO (Initial Public Offer)
This where a company applies for listing of their shares in the exchange to the licensing authority. The licensing authority in Kenya is called the CMA (Capital Market Security). It is a regulatory body which controls all the capital market factors in Kenya.
- Once the authority confirms that the company has met the entire exchange requirement the application is approved and the company is allowed to issue a prospectus.
A prospectus is a document inviting the public to purchase the shares or debentures of the company. The objectives of a prospectus are,
- To inform the public that a company has been established.
- To convince the public that a company provides the best opportunity for investment because it has honest and efficient directors.
- To present a true and certified record through which the shares and debentures have been placed before the public for sale.
- To declare that the responsibility of the matters provided in the prospectus lies on the directors of the company.
- Once the shares have been subscribed for, the allotment is done and the public pays for the shares allotted. The process is called selling the approved shares to the public which is normally done by authorized agents such as banks. This process is called floatation process.
- Once the company has sold its shares and it is confirmed that the company has satisfied the entire floatation requirement, it is listed in the exchange formerly and its instrument allowed to transact in secondary market.
After the company is listed all the relevant information of the company on financial and non financial is made public so long as it has an effect on the operations of the instrument.