A: We are deeply committed to the idea of creating a regional securities exchange for East Africa. We have been continually active in the regional developments through consultancy and partnerships. When Dar es Salaam Stock Exchange was established in 1996, the NSE was involved in a consulting capacity. The same also happened when the Uganda Securities Exchange was established in 1997. Rwanda is currently considering the establishment of a stock exchange as a satellite of the Nairobi Stock Exchange.

The harmonization of our rules and regulations and the close working relationships between the regulators and securities exchanges of the three markets has culminated in the listing of Kenya Airways, East Africa Breweries and Jubilee Holdings on all the three securities exchanges. In 2006, we signed a memorandum of understanding with the Uganda Securities Exchange as a prelude towards moving to a merger. For 2007, we have budgeted Kshs. 500.0 million towards the establishment of a regional financial centre for market intermediaries engaged in stock broking, investment banking, trust and fund management and other financial services.

Q: What are the main challenges and benefits of a possible integration?

A: The integration provides many benefits. A regional capital market can facilitate economic development by providing deeper pools of capital and a broader range of listed securities. It has the potential to address the thinness and the illiquidity of the country capital markets. East African residents will have a single access point to all the securities listed in the region. Another benefit is that it will bring Rwanda and Burundi on line without them having to reinvent the wheel. For the listed companies, a regional exchange means access to a wider capital base and well as greater acceptance and recognition of the company brand.

Of course, the process requires the national authorities to harmonize stock trading systems and to permit the residents of each state to freely acquire and negotiate monetary instruments within the EAC. Another challenge is the difference in the key macro economic indicators of each country, such as the interest rates, inflation, and the currencies.

The multiplicity of regional trading blocks also acts as a hinderance. For example, while Kenya and Uganda are members of the Common Market of Eastern and Southern Africa (COMESA) and the East African Community (EAC), while Tanzania is a member of the EAC and the Southern African Development Community (SADC).

Q: What types of listed companies dominate the NSE? Would you explain the main trends in new listings?

A: After a drought in new listings of almost 4 years the Exchange hosted 3 IPOs, one introduction to the official list and a secondary offering during the year. The IPOs of the Kenya Electricity Generating Company (through a Government privatization), Scangroup, and Eveready Batteries East Africa, the introduction of Equity Bank to the official list and the secondary offering from Mumias Sugar Company all served to create an unprecedented increase in public awareness of equity as an investment asset class. In 2007, Access Kenya Group and Kenya Reinsurance Corporation raised Kshs. 800 million and Kshs. 2.28 billion respectively.

Towards the end of 2007, the Government is expected to use the capital markets to offer a 25% stake in Safaricom. Safaricom is the leading mobile telephone operator in Kenya with a subscriber base of about 8 million and in 2006, was the most profitable company in East Africa. It was formed in 1997 as a subsidiary of Telkom Kenya and, later, Vodafone acquired a 40% stake and management responsibility.

Q: What has been the growth in the last three years in the Kenyan economy and the market?

A: The performance of most African capital markets has been stellar in the last three years. The demand for minerals and other commodities, political and economic reforms, and capital inflows were among the main drivers. The Kenyan economy is growing, with 2006 GDP growth in excess of 6%. The strongest economy sectors are agriculture, horticulture, manufacturing, telecommunications, construction, and tourism.

Q: Could you explain the change brought by the automated trading system that you recently implemented?

A: We started live trading on the Automated Trading System, or ATS, in September last year. The ATS is sourced from Millennium Information Technologies of Sri Lanka. The company is also the supplier of our Central Depository System (CDS) and of similar solutions to the Colombo Stock Exchange and the Stock Exchange of Mauritius.

The solution was customized to fit the specific requirements of the NSE. Besides trading equities, the ATS is also fully capable of trading corporate and treasury bonds. As a result of the change, trading hours and the daily volume increased. Another change is the removal of the block trades board and the introduction of the functionality for the trading rights in the same manner as equities.

There are many benefits of the new system for the market participants. Probably the most important one is the greater transparency in the placement of bids and offers. The system transmits information about the index and securities movements. Now there is more current information available to more stakeholders, which facilitates their decision making process and lowers the risk of participation in our market.

For us, the new system also means an opportunity to enhance the revenue stream with data vending to the shareholders. It also provides better control because our surveillance department can monitor the live trading session electronically, and any abnormal trading activity is investigated. With the switch to ATS, we became the first market in East and Central Africa to fully automate its clearing, settlement and trading systems.

Q: How do you see the future development of the exchange?

A: We plan to diversify our revenue stream through leveraging the ATS capabilities to roll out more information products. The real-time trading information data feed provides up-to-date market information including current market price, best bid and ask price, and transaction volumes. This information is available through the authorized vendors at a prescribed fee.

Cross-border operations should accelerate as the regional integration is now technologically possible. MIT, the vendor of our depository and trading system, has completed similar installations at the Dar-es-Salaam has been selected to implement an automated solution for the Uganda Securities Exchanges. The shared technological platform will increase the operational efficiencies and immensely aid the development of a regional market.

Another important development is our demutualization, which should be completed towards the end of 2008. It will transform the exchange from a members’ association into a for-profit corporation, shortly followed by conversion into a public company. The segregation of ownership and trading rights of the members creates better corporate governance.