This archive report was first published on 28 June 2021.
On June 28, 2021, a member of parliament requested the Chairperson of the Department Committee on Finance and Planning to issue a statement on unregulated or private offers. This led to a discussion on the differences between regulated and unregulated markets.
Regulated markets, also known as public markets, are controlled by a regulatory body that protects the public interest. Products in these markets are standardized and easily accessible to the public. Examples include shares purchased at the securities exchange, fixed deposits offered by banks, and collective investment schemes such as money market funds.
Unregulated markets, on the other hand, are governed by contracts between participating parties and are not regulated by a specific regulator. However, the process of offering is usually regulated to follow a set of defined rules and guidelines. These markets are often referred to as alternative market products.
In Kenya, issuing a private offer requires adherence to Section 21 of the Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulation, 2002. This section outlines nine conditions that must be met prior to a private offer issuance. Meeting any one of these conditions is sufficient to meet the private offers threshold.
Examples of unregulated products in the Kenyan market include real estate, private equity, structured products, and commercial papers. It's essential to note that unregulated products are not necessarily more risky, especially when sourced through a competent research and investment team.
Investors should be aware that even without regulatory approval, unregulated products are still issued within the confines of set guidelines by the regulators. A synergy between regulated and unregulated markets can lead to a more inclusive capital market, ultimately contributing to economic growth.
It's crucial for investors to understand their investment objectives, risk appetite, and the investment products available to them before making an investment decision. Continuous education is also essential for current and potential investors to comprehend the products and return prospects.
