Kenyan legislation

The Capital Markets (Coffee Exchange) Regulations

Edition: 2022-12-31 · In force

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Part I – PRELIMINARY

1. Citation

These Regulations may be cited as the Capital Markets (Coffee Exchange) Regulations.

2. Interpretation

In these Regulations, unless the context otherwise requires—"Act" means the Capital Markets Act (Cap. 485A);"auction" means the auction system under which clean coffee is offered for sale at a coffee exchange and includes the place at which, or a facility by means of which, whether electronic or otherwise, offers or invitations to sell, buy or exchange coffee contracts are regularly made on a centralized basis, but does not include—

(a)the office or facilities of a coffee buyer or service provider; or

(b)or the office or facilities of a clearing house;

"auction levy" means such fee per sixty-kilogram bag of coffee or other less volume of coffee sold at a coffee exchange, payable by millers, roasters and buyers;"Authority" means the Capital Markets Authority established under section 5 of the Act;"bid" means an offer to pay a particular amount of money for a given lot of clean coffee being offered for sale at a coffee exchange;"broker" means a person cleared by the exchange and licensed by the Authority, who may be appointed by a coffee grower or an association of coffee growers in accordance with the Crops (Coffee) (General) Regulations (sub. leg) to sell their coffee on their behalf through the Exchange;"coffee buyer" means an incorporated company licensed under the Crops (Coffee) (General) Regulations (sub. leg) to buy clean coffee at the exchange for export, local sale or value addition or to import clean coffee for secondary processing in Kenya;"clean coffee" means coffee bean or dried seed of the coffee plant separated from non-food tissues of the coffee fruit where the silver skin is reduced to the maximum possible extent;"clearing house" means an entity approved by the Authority, and recognized as a clearing institution on behalf of a coffee exchange, providing the services of clearing and settlement of transactions and guaranteeing settlement on behalf of the exchange;"clearing and settlement" means the procedure by which a clearing house acts as an intermediary between a buyer and seller for exchange traded transactions in order to reconcile orders between transacting parties and ensure the physical or financial settlement of the transaction;"coffee exchange" means a company incorporated under the Companies Act (Cap. 486) and licensed by the Authority as an exchange for trading in clean coffee;"coffee miller" means a person licensed under the Crops (Coffee) (General) Regulations (sub. leg) to conduct the business of coffee milling;"coffee roaster" means a person licensed by the respective county government to buy clean coffee under the Crops (Coffee) (General) Regulations (sub. leg) for value addition for local sale;"coffee sales proceeds" means monetary consideration received at the direct settlement system in exchange for clean coffee sold at an exchange or, where applicable, through direct sales;"coffee sample" means a small quantity of coffee, drawn out of a coffee lot to be a representative of that lot of coffee for purposes of display, testing, quality analysis, archiving, marketing or other legal purpose;"coffee warrant" means an instrument prepared by the warehouseman of which the person named therein, or the last endorsee thereof, shall for all purposes be deemed to be the owner of the coffee to which it relates;"collateral manager" means a person qualified under the Crops (Coffee) (General) Regulations and appointed by the warehouseman or any other person who has an interest in coffee stored in a warehouse with the intention of monitoring or taking custody of the coffee;"commodity" means clean coffee;"direct settlement system" means a banking facility provided by commercial banks regulated by the Central Bank of Kenya for clearing and settlement of coffee proceeds;"electronic warehouse receipt" means an authorized, verifiable and transferable warehouse receipt that has been generated, sent, received or stored by electronic, optical or similar means, conferring legal title to the depositor for commodities received in a licensed warehouse accredited by the Agriculture Food Authority;"grower" means any person who cultivates coffee in Kenya and may for purposes of licensing under the Crops (Coffee) (General) Regulations and includes co-operative societies, unions, associations and estates;"grower miller" means a grower licensed under the Crops (Coffee) (General) Regulations, who mills own parchment or buni or its members' coffee and includes a co-operative society, unions, association, estate or any other legal entity comprised of growers;"lot" means a saleable quantity of coffee specified in the sales catalogue designated for bidding;"marketing of coffee" means identification of competitive prices and facilitation of transactions relating to sale of coffee;"net warrant weight" means the net weight of coffee at the point of sale per lot after allowing for all required samples;"no bid" means a lot that has not attracted any bids at the auction;"out-turn number" means a reference number assigned by a coffee miller to a coffee consignment delivered to a mill;"prompt date" means a date specified in the sales catalogue and shall not be more than five working days from the date of the sale on which coffee sales proceeds are to be received by the grower through and from the buyer through the clearing house;"service provider" means a person who may have contractual dealings with the coffee growers and shall include cooperative societies, millers, warehousemen, transporters and financiers;"settlement account" means an account in the direct settlement system into which all coffee sales proceeds sold at the exchange are paid;"reserve price" means the price set as the minimum price before the auction by a miller in consultation with the grower;"sample deposit fee" means an amount of money payable in advance to an exchange, by buyers or roasters as security for collecting offer samples at an exchange, this being such an amount as may be determined by that exchange from time to time;"sample fee" means the price payable to an exchange by a buyer or a roaster for the offer sample collected at the sample room, based on the average price of coffee traded at that exchange in the month that the sample was collected;"sample room" means the physical space provided by an exchange for reception, display and distribution of coffee samples;"settlement bank" means a bank as defined under section 2 of the Banking Act (Cap. 488), approved by the Authority to facilitate the maintenance of a segregated account and to establish and operate a direct system for settlement and payment of coffee sales proceeds to growers;"sweepings" means the balance of coffee samples in the exchange sample room and spillages collected from millers' milling activities for sale at the exchange and the proceeds paid to growers on pro-rata basis;"sales catalogue" means a standard document prepared by a miller or a broker in consultation with the exchange for sale of clean coffee at the exchange;"sale" means the offering of clean coffee for sale;"trading floor" means the physical and electronic space and all the facilities including items, equipment, records and assets provided by or belonging to or in use by an exchange for purposes of coffee auction;"warehouse" means any building, structure or other protected enclosure duly licensed by the relevant authority to be used for the storage or conditioning of coffee for the purposes of trading at an exchange and is specifically designed to guarantee quantity, quality and safety of the coffee;"warehouse inspector" means a person empowered by the relevant authority to inspect warehouses and coffee kept therein to ensure that the warehouse operator complies with the law and the conditions of the operator's licence;"warehouseman" means a person duly licensed by the Agriculture and Food Authority to engage in the business of operating a warehouse for receiving, storing, shipping or handling coffee for the purposes of trading at an exchange; and"warehouse receipt" means a receipt issued by a licensed warehouseman in respect of coffee stored or handled in a licensed warehouse for the purposes of trading at an exchange, certifying that the specified coffee is of the stated quantity and quality and is located at the specified location, and includes an electronic warehouse receipt.

3. Object, purpose and application

The purpose of these Regulations is to—

(a)to give effect to section 12 (1) of the Capital Markets Act (Cap. 485A);

(b)provide for the establishment and regulation of coffee exchanges;

(c)provide for the licensing of coffee brokers;

(d)provide for the establishment and operationalization of direct settlement system for expedited and transparent payment of coffee sales proceeds;

(e)provide for the promotion and maintenance of an efficient coffee exchange;

(f)give directives, principles and conditions for trading of clean coffee at an exchange;

(g)ensure the trading is conducted in a secure, stable and transparent manner in an environment of fair competition; and

(h)provide for the protection of the interests of the grower, the buyer and other stakeholders at an exchange.

Part II – COFFEE EXCHANGE

4. Regulation of coffee exchanges

(1)A person shall not carry on the business of a coffee exchange unless he has applied for approval and licensed as a coffee exchange by the Authority in such manner as the Authority may provide.

(2)An application under paragraph (1) shall be made in Form A as set out in the First Schedule and accompanied by —

(a)the copies of memorandum and articles of association, certificate of incorporation, and rules governing the operations of the exchange, which —

(i)are in a form satisfactory to the Authority; and

(ii)restrict the applicant to the business of operating a coffee commodity market and services incidental thereto;

(b)details of trading, clearing and settlement systems proposed to be adopted by the applicant;

(c)the application fees set out in the Second Schedule;

(d)satisfactory bank references;

(e)a business feasibility plan evaluated by an entity with a proven track record and expertise; and

(f)any such additional documents as the Authority may require.

(3)In order to be entitled to apply for a licence under regulation 3, an applicant shall, unless otherwise expressly exempted by the Authority, be required to—

(a)be demutualized;

(b)have a minimum authorized, issued and paid up equity share capital to support initial infrastructural investments and three years' operating capital;

(c)satisfy requirements relating to ownership and governance structure specified in these Regulations;

(d)have its directors and shareholders who hold or intend to hold share, determined as fit and proper persons as provided under section 24A of the Act;

(e)satisfy the Authority on the exchange's financial capacity functional expertise and infrastructure;

(f)have in its employment, sufficient number of persons with adequate professional and other relevant competencies and experience; and

(g)comply with any other conditions as may be specified by the Authority.

(4)The Authority may, if satisfied that the applicant has demonstrated that it is capable of complying with the requirements under this regulation and upon payment of the licensing fee set out in the First Schedule, grant the applicant a licence to operate as a coffee exchange.

5. Rules and obligations of a coffee exchange

(1)An applicant seeking approval to operate as a coffee exchange shall develop its rules, which shall provide for—

(a)the clear demarcation of roles and responsibilities of the board, chief executive officer and the committees of the board;

(b)the appointment of directors and a fair representation of persons in the selection of members of the board and administration of its affairs including the professions relevant to coffee industry;

(c)the powers of the chief executive officer including in emergency situations;

(d)the qualifications for membership;

(e)the exclusion from membership of persons who do not meet the minimum criteria on integrity;

(f)the expulsion, suspension or disciplinary action against members for conduct inconsistent with just and equitable principles relating to trading in coffee, or for a contravention of the rules of the coffee exchange;

(g)specify qualifications for applicants for membership and provisions for accepting applicants as trading participants, imposing conduct and other requirements on them;

(h)provide for the governance of the conduct activity of participants, including their responsibility to act with integrity and in the interests of maintaining a proper market, paying such fees and charges as may be applicable and abiding by the rules of the clearing house;

(i)prohibit market abuse practices;

(j)provide mechanisms for effectively investigating breaches of the rules, enforcing the rules and providing for appeals;

(k)make default provisions for the taking of proceedings or other action if a clearing member has failed, or appears to be unable, or likely to become unable, to meet his obligations for any unsettled or open market contracts to which he is a party;

(l)specify qualifications for trading membership, imposing conduct and other requirements on them and, where appropriate, for the procedure for their removal as trading members;

(m)the making of reports to the Authority by the exchange whenever it rejects any application for membership, where it suspends or expels a member or where it suspends trading;

(n)procedures for developing warrants and receipts to be traded on the exchange;

(o)the terms and conditions under which coffee or contracts may be traded;

(p)an audit system relating to proprietary trading by members;

(q)the standard coffee grades that may be traded by members and the terms and conditions governing trading by members;

(r)fair and properly supervised trading practices;

(s)measures to prevent market abuse in its coffee market;

(t)preventing the excessive use of credit by way of initial or maintenance margin in respect of the purchase or carrying of any coffee;

(u)the recording and publishing of details of trading, clearing and settlement;

(v)dues, fees and other charges levied by the exchange and its other sources of revenue;

(w)internal procedures to ensure the proper handling of complaints and to ensure that any appropriate remedial action on those complaints is promptly taken;

(x)the resolution of disputes and provision for appeal;

(y)the carrying on the business of the coffee exchange generally, including the development of a regional exchange, with due regard to the interests and protection of growers and investors; and

(z)any other provisions specified by the Authority.

(2)The rules established and adopted by the exchange under paragraph (1) shall be approved by the Authority before being applied by the exchange.

(3)The rules of a coffee exchange shall apply to the officers of the exchange, members and employees of the members of the exchange and the member shall be responsible to ensure their employees' compliance with the rules.

(4)The Authority may require a coffee exchange to comply with such additional requirements as may be imposed on a commodities exchange under any written law.

6. Systems, staffing and record keeping

A coffee exchange shall—

(a)provide and maintain a transparent and an efficient system for coffee trading;

(b)ensure that it has employed qualified staff for the undertaking of its activities;

(c)ensure that it has in place proper and adequate infrastructure in terms of office space, equipment and software to enable it undertake its activities;

(d)ensure the proper training of its staff in activities related to its activities;

(e)accord reasonable access to the auction of all persons licensed under the Crops (Coffee) (General) Regulations (sub. leg) to trade;

(f)maintain a data base for records of coffee sales at the auction floor and other related trade activities;

(g)comply with the regulatory requirements of the Authority;

(h)comply with the directives of the Authority;

(i)establish a linkage between the direct settlement system provider and licensed coffee warehouses to facilitate release of coffee to coffee buyers or roasters upon payment;

(j)establish a direct link between its systems and software and the Authority; and

(k)disseminate market information for every coffee auction and an analysis of performance on a daily, weekly and monthly basis.

Part III – COFFEE BROKERS

7. Obligation to seek a licence

A person shall not carry on or purport to carry on business as a coffee broker unless that person is licensed by the Authority.

8. Licensing of coffee brokers

(1)A person who intends to operate as a coffee broker shall submit an application to the Authority for a licence to operate as such in Form B as set out in the First Schedule.

(2)An application under paragraph (1) shall be accompanied by—

(a)the fees as set out in the Second Schedule;

(b)the documents, information and declarations specified under regulation 9; and

(c)a letter from the coffee exchange stating that the applicant meets all the relevant requirements of that exchange and that the exchange will admit the applicant if licensed by the Authority.

9. Consideration for grant of licence

An applicant seeking a licence under regulation 8 shall be required to—

(a)be a company limited by shares;

(b)have a chief executive officer who is a fit and proper person as described under section 24A of the Act and who has experience of not less than five years in the business of buying, selling or dealing in coffee, commodities or other securities;

(c)have the necessary infrastructure including office space, equipment and trained staff to effectively discharge its activities;

(d)have as its directors and key personnel, persons who are fit and proper as described under section 24A of the Act; and

(e)have a minimum net capital and minimum net worth as determined by the coffee exchange and approved by the Authority from time to time.

10. Furnishing of information, clarifications etc.

(1)The Authority may, in considering an application made under regulation 8, require an applicant to furnish such further information regarding any previous dealings in securities, commodities and any other related matter as the Authority may consider necessary.

(2)An applicant or its key personnel shall, if required by the Authority, appear before the Authority to make personal representations.

11. Grant of licence

(1)The Authority, shall, within thirty days from the date of application, grant a licence to an applicant, if the Authority is satisfied that the applicant is eligible to be licensed as a coffee broker.

(2)The Authority shall duly inform the coffee exchange and the applicant of the grant of a licence under paragraph (1).

(3)A licence granted under paragraph (1) shall remain valid until suspended or revoked.

(4)The Authority shall not refuse to grant a licence without first giving the applicant an opportunity to be heard.

(5)Where the Authority, after hearing the applicant, refuses to grant the applicant a licence, the Authority shall communicate the decision to the applicant and the coffee exchange within fourteen days of the hearing, stating the grounds for refusal.

(6)An applicant aggrieved by the decision of the Authority under paragraph (5) may appeal against such refusal to the Capital Markets Tribunal within fifteen days of receipt of the decision of the Authority.

12. Annual licence fees

A coffee broker shall pay an annual licence fee as set out in the Second Schedule.

13. Suspension of a licence

(1)Where the Authority is satisfied that a coffee broker has—

(a)failed to comply with the Act, these Regulation or any directions made or given thereunder;

(b)failed to comply with any conditions subject to which the licence was granted under these Regulations;

(c)contravened the rules of the coffee exchange;

(d)failed to adhere to any requirement of the code of conduct laid down under these Regulations or other laws;

(e)failed to comply with the directives of the Authority in respect of business conduct, dealings with clients and financial prudence;

(f)failed to furnish any information relating to transactions of the coffee broker as may be required by the Authority;

(g)failed to submit periodical returns as required by the Authority;

(h)furnished the Authority or the exchange with wrong or false information;

(i)failed to settle an investor complaint where such complaint has been adjudicated by the exchange, a committee of the exchange, the Authority, the Capital Markets Tribunal, or a court of law;

(j)not co-operated in any enquiry or inspection conducted by the Authority;

(k)indulged in market manipulation, price rigging or cornering activities at a coffee exchange;

(l)experienced or is experiencing financial position deterioration to such an extent that the Authority is of the opinion that the continuance of the coffee broker in the business is no longer in the interest of investors;

(m)been suspended by the exchange; or

(n)failed to pay the annual fees; or it is necessary in the public interest to do so,

the Authority may, by an order in writing, suspend the licence of a coffee broker for such period as may be specified in the order or take such administrative action as it may consider necessary.

(2)The Authority shall, before issuing an order of suspension or other administrative action under paragraph (1), give a coffee broker an opportunity to be heard.

14. Revocation of a licence

(1)The Authority may, by order in writing, revoke the licence of a coffee broker where it is satisfied that—

(a)the reasons for suspension of a licence under regulation 13 continue during the period of such suspension;

(b)a coffee broker whose licence has been suspended —

(i)is engaging or has engaged in insider trading, market manipulation or any other unfair practice or market abuse;

(ii)has been found guilty of fraud or convicted of a criminal offence;

(iii)has not complied with a directive of the Authority;

(c)the membership of that coffee broker has been cancelled by a coffee exchange or another securities exchange; or

(d)it is necessary for the protection of investors.

(2)The Authority shall, before issuing an order of revocation under paragraph (1), give the coffee broker an opportunity to be heard.

15. Automatic revocation of a licence

A licence granted under regulation 11 shall automatically be revoked if the coffee broker—

(a)ceases to be a trading member of a coffee exchange;

(b)is declared a defaulter by a securities exchange or a coffee exchange and is not re-admitted to membership within a period of six months from such declaration;

(c)surrenders its membership in all coffee exchanges where it is a member;

(d)is declared insolvent by a court of law;

(e)voluntarily surrenders the licence to the Authority; or

(f)is wound up by a court order.

16. Appeal against suspension or revocation of licence

A coffee broker aggrieved by the decision of the Authority to suspend or revoke its licence may, within fifteen days of being notified of the decision of the Authority, appeal to the Capital Markets Tribunal.

17. Coffee broker to clear liabilities

Despite a suspension or revocation of a licence, a coffee broker shall be responsible for clearing all its outstanding obligations up to the date on which that coffee broker has been operating as such.

18. Continuing obligations

A coffee broker shall, as a condition of continued admission as a coffee broker, provide to the Authority through the coffee exchange a certified copy of —

(a)the net capital balance;

(b)net worth statements; and

(c)a report of the auditor,

in a form that may be recommended by the Authority from time to time, on a quarterly basis within thirty days of the end of the quarter.

Part IV – COFFEE SAMPLING

19. Central sample room

(1)An exchange shall maintain a central sample room where samples of coffees to be offered for sale shall be held for distribution to buyers and roasters, and for display and archiving.

(2)An exchange shall maintain an on-line portal in which information on coffee samples, quality and quantity of coffee on offer at the exchange will be accessible to intending buyers and interested persons.

20. Sample deposit

(1)Every buyer and roaster operating at an exchange shall be required to deposit such amount of money as determined by the exchange from time to time, as security for collecting offer samples at the exchange.

(2)An exchange shall operate a coffee sample deposit account in a bank to be determined by the exchange in which all the sample deposits paid by buyers and roasters shall be deposited.

(3)Interest earned or accruing from such deposits shall form part of the earnings of the exchange and provided further, that the only permitted drawings from this account shall be—

(a)sample fees netted off against samples collected by buyers and roasters;

(b)refunds to buyers and roasters ceasing to trade; and

(c)such interest earned or accruing from the sample deposit account.

(4)A buyers or roaster who fail to pay the raised sample fees invoices within the due dates shall be suspended by the exchange from further collection of samples until such top ups are made.

(5)Any refunds under paragraph (3)(b) shall be made without interest and net of any indebtedness by the buyer or roaster to the exchange.

(6)No interest shall accrue to the benefit of the buyers or roasters in respect of the sample deposit.

21. Offer sample

An offer sample out of a lot of coffee presented for sale at an exchange shall be availed by the exchange to licensed buyers and roasters prior to the auction.

22. Sample fee

Every buyer or roaster shall within fourteen days of receipt of an invoice from an exchange pay a sample fee in respect of all the selling samples collected.

23. Recovery of sample fee

A buyer or roaster shall be given a fourteen days' notice to pay the outstanding sample fee and in default thereof, the fees shall be recovered from the sample deposit provided that all buyers and roasters shall maintain a minimum sample deposit balance of an amount to be determined by the exchange.

24. Deduction and remission of sample fee

An exchange shall deduct the sample fee invoiced from the forfeited sample deposit.

25. Representative samples

(1)A miller or an appointed broker shall deliver to the sample room, representative samples out of a lot of coffee being offered for sale at an exchange in such quantities as may be determined from time to time by the exchange.

(2)The samples delivered by the millers or appointed brokers to the sample room shall be in accordance with the prevailing procedures as determined by the exchange from time to time.

26. Reference sample

(1)A reference sample of coffee shall be drawn from each lot and retained by an exchange for archival storage, for at least six months from the date of the sale for verification in case of a dispute:

(2)Notwithstanding paragraph (1), where a dispute exceeds six months, an analysis of the sample shall be done by an expert and the quality report submitted to the exchange.

27. Buying sample

A buying sample of coffee shall be drawn from each lot of coffee purchased at the auction to be availed to the buyer or roaster who has purchased the lot for verification.

28. Display sample

A display sample shall be drawn for display in the sample room.

29. Sample records

The exchange shall maintain records relating to —

(a)receipt of coffee samples from the millers;

(b)distribution of coffee samples to buyers, roasters and the exchange; and

(c)release of sweepings to the millers or other agent of the growers on a lot prorated basis for sale.

30. Sale of sweepings to benefit growers

Proceeds of sale for sweepings shall be remitted to growers through the direct settlement system provider on a prorated basis and shall have unique codes.

31. Submission of sample returns

(1)A miller or broker shall submit returns to an exchange and the Coffee Directorate on remission of monies received from samples and sweepings to the growers.

(2)An exchange shall make weekly, monthly, biannual and annual auction returns to the Coffee Directorate.

(3)An exchange shall prepare monthly reports on its performance and forward the same to the Coffee Directorate, buyers, roasters, millers, growers or growers' representatives and other interested parties.

32. Resolution of disputes

(1)In the event of a dispute arising out of coffee traded at an exchange and at the request by a complainant made to the exchange or the licensing authority, a random representative sample shall be redrawn from the lot or consignment in dispute for comparison with the reference sample.

(2)The instructions to draw each sample shall be lodged at the exchange or the licensing authority which shall in turn instruct the licensed warehouseman to allow redrawing of samples by the aggrieved party and any interested party may witness the exercise.

(3)In the event of a marked difference between the reference sample and the redrawn sample, additional samples shall be drawn from each bag in the lot and such individual sample together with the bag from which it has been drawn shall be referenced accordingly.

(4)In the event that the dispute is unresolved by the exchange or the licensing authority, it shall be referred to the Capital Markets Tribunal established under the Capital Markets (Cap. 485A).

Part V – TRADING AT THE AUCTION FLOOR

33. Participation at the trading floor

(1)Only licensed persons under these Regulations and other relevant laws shall participate on the trading floor of a coffee exchange.

(2)The participants on the trading floor shall be required to pay to the exchange the applicable auction levy.

34. Holding of auctions at the Exchange

(1)The exchange shall, in consultation with millers or appointed brokers, as the case may be, set the volumes, lot sizes, dates and times for holding of coffee auctions.

(2)Notwithstanding paragraph (1) provided that no suspension or cancellation of any auction shall be done without notification to the Authority.

35. Sales catalogue

(1)A sales catalogue shall be prepared by the grower miller or an appointed broker in accordance with the Third Schedule.

(2)The exchange shall, in consultation with grower millers or appointed brokers as the case may be, determine the order of the sales catalogues for every sale and the exchange shall ensure that reasonable access to the auction is given to all persons licensed to trade under the Crops (Coffee) (General) Regulations.

(3)A draft of the sales catalogue of each grower miller or broker shall be made available to buyers and roasters in accordance with the prevailing procedures of an exchange.

(4)The final sales catalogue shall be made available to the exchange by the grower miller or broker in accordance with the prevailing procedures of an exchange.

36. Disclosure of bulked coffee

A miller shall disclose to the broker and the exchange, details of all bulked coffees and justify its basis.

37. Conditions of auction sales

Trading at the auction shall be in US Dollars or any other currency as may be determined by the exchange with the approval of the Authority.

38. Process of trading at the exchange

(1)The process of trading at the exchange shall be in accordance with these Regulations and shall comprise the following—

(a)a miller shall deposit clean and graded coffee at a designated licensed warehouse, and where the clean coffee is a bulk, the respective coffee growers and the proportions of their coffee will be stated in writing;

(b)the coffee shall meet defined quality standards for commodity trading at the exchange at which the coffee will be offered for sale;

(c)the warehouseman shall issue a coffee warrant as set out in the Fourth Schedule or transferable warehouse receipts as the case may be, stating the quantity and quality of the coffee deposited and ensure traceability of the coffee;

(d)the warehouseman shall guarantee delivery of the coffee described in the coffee warrant or warehouse receipt as the case may be, and in the event of loss or failure of delivery, the warehouseman shall be liable;

(e)a coffee warrant or warehouse receipt as the case may be, issued shall be transferred to a new holder who is entitled to take delivery of the coffee upon presentation of the coffee warrant or warehouse receipt at the warehouse;

(f)when the owner of coffee deposited in a warehouse decides to trade and is acting through a broker, the owner shall contact the broker and give authority to sell;

(g)for purposes of sale, the miller shall input the details of the coffee warrant or warehouse receipt as the case may be, into the central registry of the exchange at which coffee will be offered for sale;

(h)the collateral manager, where applicable, shall confirm that the warehouse receipt as the case may be, is valid by inspecting and auditing underlying commodities in warehouse;

(i)upon verification, details in the central registry shall be confirmed into the central order book ready for trading;

(j)once the sale of coffee is complete, successful bidders shall be invoiced by the miller or broker and payments of the proceeds shall be effected through direct settlement system net of contract and any statutory charges;

(k)upon confirmation of payment by the direct settlement system provider and endorsement by the exchange, title to coffee shall be transferred to the buyer by changing ownership details in the coffee warrant or warehouse receipt, as the case may be, at the central registry; and

(l)new owners will thereafter be at liberty to take delivery of the coffee.

(2)The grower or the grower's agent shall set the reserve price for each lot in the sales catalogue.

(3)An exchange shall not disclose the reserve price to a buyer, roaster or any other party whatsoever provided such reserve prices shall be disclosed to the Authority when requested.

(4)In the event that the highest bid for any lot is equal to or higher than the reserve price it shall be confirmed.

(5)Where the bid has not been confirmed, the miller or other agent of the grower shall disclose the reserve price at the trading floor.

(6)Where the disclosure of the reserve price does not attract any competitive offers, the coffee shall be withdrawn and re-offered for sale at a subsequent auction.

(7)A "No-Bid" lot shall be re-offered for sale at a subsequent auction.

(8)All trading in coffee shall be concluded at the trading floor.

39. Withdrawal of a lot

(1)A miller or broker may, by written communication to an exchange, made at least three working days prior to the date of sale, withdraw a lot that was destined for sale and such written communication shall also state the reasons for withdrawal.

(2)The exchange shall communicate the withdrawal in writing to all buyers and roasters at least two working days prior to the date of sale.

(3)Samples of lots withdrawn shall not be compensated.

40. Prompt date

(1)The prompt date shall be specified on the sales catalogue and shall be not more than five working days following the date of the sale.

(2)All coffees shall be paid for within the prompt date against an invoice presented by the miller.

Part VI – SETTLEMENT OF SALES PROCEEDS

41. Direct settlement system

(1)A direct settlement system shall be established by a licensed commercial bank competitively selected by an exchange subject to approval from the Authority and managed by that exchange.

(2)The requirements for the operation of the direct settlement system shall be as set out in the Fifth Schedule.

(3)The proceeds of the sale of coffee at the auction shall be remitted by a coffee buyer or roaster through a direct settlement system for onward settlement to the service providers and net payment to the grower.

(4)A coffee grower or the grower's authorized representatives, shall after the commencement of these Regulations, supply through the coffee exchange all the necessary particulars of the grower to the appointed financial institution providing the direct settlement system to the grower, for purposes of initiating the settlement system.

(5)The grower or the grower's authorized representatives shall also through the coffee exchange lodge with the financial institution providing the direct settlement system, any relevant contracts of service for which payment will be due from the grower, and any other document showing outstanding liabilities payable by the grower, for purposes of settlement through the system.

(6)The grower or the grower's authorized representatives shall ensure that the information provided under paragraphs (4) and (5) above is correct and relevant and they shall be liable for any loss or other consequences resulting from any incorrect information given to the commercial bank, through the coffee exchange, providing the settlement system.

(7)A coffee exchange shall indemnify the grower's authorized representatives in the event that it provides incorrect information different from the one submitted by grower's authorized representatives for onward transmission to the commercial bank providing the settlement system.

(8)The miller or broker shall generate invoices for coffee sold at an exchange and send a copy to the buyer or roaster and the exchange shall send the transaction file to the direct settlement system provider to validate the information supplied by the miller.

(9)The commercial bank operating the direct settlement system and the exchange where coffee is offered for sale, shall maintain records of all trade transactions.

(10)The commercial bank in which the direct settlement system is housed shall make the operations of the direct settlement system electronically accessible to interested parties or their authorized representatives.

(11)The commercial bank operating the direct settlement system shall prepare monthly and annual reports on its operations for submission to the exchange and the exchange shall make the reports accessible to interested parties.

(12)For purposes of payment by the direct settlement system, a service provider shall supply authenticated documents in support of any claim not later than three months of that service provided that such claims are supported with prior agreements between the growers and such service providers and lodged with the direct settlement service provider through the coffee exchange.

(13)The commercial bank operating the direct settlement system shall be responsible for provision of clearing, delivery and settlement services of proceeds from coffee traded at the exchange.

(14)The operations of the direct settlement system shall be in accordance with laws relating to banking and finance and any laws governing the exchange.

(15)The commercial bank operating a direct settlement system shall be responsible for—

(a)settling trading accounts;

(b)collecting and maintaining margin monies;

(c)reporting trading data;

(d)maintaining a database for trading activities;

(e)receiving millers' invoices for processing; and

(f)authenticating the millers' invoices against the transaction file.

(16)The direct settlement system of payment of coffee proceeds shall be put in place by the exchange within a period not exceeding twelve months upon the commencement of these Regulations.

42. Settlement of bank charges

(1)Any bank charges incurred by the buyer or roaster upon making payment shall be settled by the buyer or roaster, whilst those incurred by the miller upon receipt of coffee sale proceeds shall be deducted directly by the clearing house into which the proceeds have been paid.

(2)A buyer or roaster who will not have settled his payments in full by the set deadline as per rules or operations of the exchange shall be considered a defaulter.

(3)In the event of default by a buyer or roaster to pay by the set deadline, the bank shall immediately issue a notification of the outstanding payments and the interest rates chargeable to the defaulter with a copy to the miller and the exchange and the buyer or roaster shall be automatically suspended from participating on the trading floor until the buyer or roaster pays the outstanding amounts in full and the interest.

(4)The interest on the outstanding payments shall accrue effective from the day following the prompt date at the prevailing commercial bank lending rate at the settlement bank in USD.

(5)If the defaulter does not pay the outstanding amounts together with interest thereon within five working days from the prompt date, the defaulter shall be liable to pay a penalty and the coffee shall be reoffered for sale at a subsequent auction.

(6)In the event that after reselling the coffee, any shortfall in value from the original bid occurs, the miller shall notify the Authority and the exchange of the shortfall, all accrued interest and any other related expenses and losses for the purpose of recovery of the entire amounts from the defaulter or from the performance bond of the defaulter.

(7)A buyer, roaster or miller who fails to pay any outstanding obligations to the exchange or to a grower shall be suspended by the exchange with notice to the Authority.

(8)The exchange shall lift a suspension upon settlement of outstanding obligations.

(9)The exchange shall report any buyer, miller or roaster who has defaulted more than twice within a period of six months, to the relevant authority for suspension or cancelation of the license.

43. Dispute relating to coffee trade

(1)Where a dispute arises in regard to coffee quality, a claim may be brought within sixty days of sale.

(2)The claim shall be based on samples drawn and sealed by a licensed certified warehouse in the original storage location.

(3)In the event of a quality difference between the offer and buying samples, and the actual coffee lot, the buyer or roaster shall make an immediate claim to the miller or appointed broker within three working days and reference may be made to the reference samples.

(4)Where the actual coffee lot does not conform to the buying sample, the parties may, by mutual consent, negotiate a settlement which may include compensation for opportunity cost of funds involved payable by the person who is responsible for the coffee quality difference.

(5)The parties shall be at liberty by mutual consent to agree to a settlement that may also include sorting, bulking, price adjustment or refund.

(6)Incorrect information on the packaging material used for a specific lot shall give the right to a buyer or roaster to charge the miller for all the costs of re-bagging.

(7)In the event that the dispute remains unresolved, it shall be referred to the exchange or the licensing authority.

(8)In the event that an aggrieved party is dissatisfied with the decision of the exchange or the licensing authority, the party shall have the right of appeal to the Capital Markets Tribunal established under the Capital Markets Act (Cap. 485A).

44. Disputes relating to coffee weight loss

(1)A licensed warehouseman shall be responsible for any weight loss which shall be the difference between the weight indicated in the coffee warrant or the warehouse receipt as the case may be, and the weight indicated in the weight note provided to the buyer or roaster at the time of release of coffee.

(2)The weight loss claim will be limited to a period of thirty days from the date of the sale and shall be presented by the buyer or roaster to a licensed warehouseman except when such a claim on weight loss is within the acceptable tolerance levels as determined by the exchange from time to time.

(3)Where the disputing parties fail to reach an amicable settlement, the dispute shall be referred to the exchange.

(4)In the event that an aggrieved party is dissatisfied with the decision of the exchange, the party shall refer the matter to the Authority for resolution, failing which the Authority shall put in motion the arbitration process.

Part VII – GENERAL PROVISIONS

45. Assumption of risk

Prior to payment of the purchase price by the buyer, the property in the coffee shall remain in the grower and it shall be upon the warehouseman to ensure that the coffee is insured at all times prior to receipt of payment and release of the coffee.

46. Accounts and Audit

(1)An exchange shall cause proper books of accounts to be kept with respect to—

(a)all sums received and expended by the exchange and matters in respect to which the receipt and expenditure took place;

(b)all sales and purchase of goods by the exchange; and

(c)the assets and liabilities of the exchange.

(2)The exchange shall prepare an annual report containing audited financial statements within four months of the close of the financial year.

(3)A complete set of financial statements includes the following components—

(a)balance sheet;

(b)income statement;

(c)a statement showing either—

(i)all changes in equity; or

(ii)changes in equity other than those arising from capital transactions with owners and distributions to owners;

(d)cash flow statement; and

(e)accounting policies and explanatory notes.

47. Operating capital of an exchange

An exchange shall comply with the minimum operating capital requirements covering twelve months of its operating costs.

48. Appeal

(1)Any person aggrieved by an act or omission of an exchange may within thirty days after being notified of such act, omission or decision, appeal to the Authority.

(2)Where an applicant is dissatisfied with the decision of the Authority in sub regulation (1), the applicant may seek judicial recourse within thirty days of the decision.

49. Declaration of stocks

(1)All licensed buyers, roasters and millers shall be required to declare held stocks to an exchange to facilitate scheduling of coffee auctions.

(2)Coffee offered and sold at an exchange shall not be re-offered at any other exchange.

50. Certificate of purchase

(1)An exchange shall, after every sale of coffee, issue to the purchaser a certificate of purchase in such form, and containing such details of the coffee purchased, as the Authority may prescribe.

(2)A person shall not alter any certificate or other document issued or prepared for the purposes of these Regulations.

(3)A licensed buyer or other person exporting any coffee shall, within fourteen days of the export of that coffee, submit to the exchange a copy of the relevant certificate of origin or certificate of re-export, as the case may be, stamped by the Commissioner of Customs and Excise, together with a non-negotiable bill of lading relating to the coffee.

51. Exemptions

Nothing in these Regulations shall apply to the export or dispatch of any coffee when the coffee concerned—

(a)consists only of a sample or a parcel not exceeding twenty kilograms in weight; or

(b)is fully ground or processed coffee for consumption on ships, aero planes or other international carriers.

52. Approval from the Authority

A coffee exchange carrying on trading in coffee shall, within twelve months of commencement of these Regulations seek the approval and licence from the Authority in compliance with these Regulations.

53. Transitional provisions

A person carrying on trading at a coffee exchange prior to the commencement of these Regulations, shall be required to make an application to the Authority for licensing within a twelve months after the commencement of these Regulations.

Source: Kenya Law · Imported 4 October 2026