Proposed Intelligent System to Support Local Businesses in Kenya

George Uyoga Onyango Rabar

ABSTRACT
The use of intelligent systems is important in improving the business functions and efficiency. The areas where these systems can be used are diverse ranging from storage of records, analysis of trends and patterns and evaluation of real time data. It is crucial to understand the underlying factors and principles of setting up an intelligent system and also to have an understanding of their various tasks and how they can be used in the business context. Managing of Credit Risk and the trade of stock on the exchange market has always presented challenges especially in the local context. The issues faced are mentioned and how the use of intelligent systems can go a long way in circumventing the arising issues. This paper is a survey on how intelligent systems can be used in the automation of the stock exchange and in the management of credit risks so as to derive the underlying potential advantages of computerisation in the current fast paced business scene.

1.0 INTRODUCTION
Extrapolating previously unknown relations and regularity in the data can be an important intelligent tool for backing up business decisions. Berry and Linoff (1997) state that strategic decision will itself create new measurement needs and consequently new business needs, setting off what has been called the virtuous circle of knowledge induced by intelligent systems Intelligent systems looks for relations and associations between previously unknown phenomena to reveal hidden intelligence that can be integrated into processes to provide predictive capabilities that can lead to strategic and accurate decision making. The effectiveness of the decision taken from the data is also measured.

2.0 PROBLEM DESCRIPTION

The recent advances in information and database technologies have led to business organisations being able to accumulate vast amounts of data. The storage of business data in disparate forms and in unrelated systems coupled with the lack of statistical analysis tools has lead to the poor potential use of information that can be used to improve operational efficiency 2.1 Credit Risk Rating System A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Recently, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit. A poor credit rating indicates a high risk. Financial lending institutions are exposed to credit risk at individual customers and company level. Traditionally, risk assessment was based on the analytical ability and personal bias of the interviewer. The assessment is based onto broadly categorizing the risk into various classes based on the homogenous terms of probability of defaulting. The following factors can influence credit rating: history of borrowing and repayment, availability of assets and extent of liabilities, ability to repay the loan, saving and spending patterns 2.1.1 Reasons for Credit Risk Management The purpose of credit risk rating is to categorize customers into various classes, each of which is

homogenous in terms of its probability of defaulting. The main reasons for undertaking risk management are to determine: amount of interest and repayment schedule level or amount of collateral to undertake based on the value of the risk amount of provisions that will take care of the risk in case of defaulting the level at which the business should diversify so as to circumvent the risk the amount and level of insurance to take for the anticipated risk amount of the loan interest to capitalize for reporting purposes 2.2 Stock Trading Traditionally trading in company stock has been carried out by a stock broker acting on the instructions from their investor. The steps have been as follows (Appendix II): 1. The investor instructs broker to buy a certain amount of company shares. 2. The brokers order department sends the order to their floor clerk on the exchange. 3. The floor clerk alerts one of the firms floor traders who find another floor trader willing to sell the required amount of shares of the specified company 4. The two agree on the price and quantity and complete the deal. 5. The notification process goes back up the line and the broker calls back with the final price. 6. A few days later, the investor will receive the confirmation notice of the transaction Apart form the benefits realised, there been some shortcomings. (See Appendix II) The investors have not been able to monitor online the buying and selling of shares done on their behalf. Investors are not been able to make sound decisions due to limited market intelligence There are commissions charged for various traded securities. Wily investors issue orders remotely only to disown them if the market moves against them. Unauthorised transfer of securities from one account to another, whereby the securities are subsequently sold without consent or knowledge of the account holder. Investors get to know of changes in their portfolio only when they receive monthly

statements from the brokers. 3.0 INTELLIGENT SYSTEM

The use of intelligent systems to support decision making is important for any business. The areas these systems could be used are diverse ranging from storage and retrieval of archived or current records from both internal and external sources so as to make key inferences. Intelligent systems a can greatly improve the following: Timeliness in making decisions Consistency in decisions Explanations and justifications for specific recommendations Management of uncertainty Formalisation of organisational knowledge 3.1 Implementing an Intelligent System Successful implementation of an intelligent system on an exiting data warehouse, is a collaborative effort driven by business experts, developed by analytic modellers and supported by the information technology staff, using the right methodology, architecture and technology. To plan, implement and successfully set up an intelligent system it is necessary to have an integrated software solution that includes sampling the data, through the analytical and modelling phases, and up to the publication of the resulting business information. The ideal solution should be user-friendly, intuitive and flexible enough to allow the user with little experience in statistics to understand and use. An intelligent system consists of the following major elements: (See Figure 1) 1. Raw transaction data is extracted or loaded onto the target system database 2. The data is processed into a multidimensional database system 3. The database is transformed by dimension reduction

4. The data is analysed for patterns using various statistical application software 5. The available knowledge can then be used to aid decision making Figure 1: Intelligent System Elements

3.2 Intelligent System Implementation Process

The process of creating an intelligent system starts by first building a data mining model. This is an iterative process requiring looping back to the previous phase. The process can be defined into the following high level steps as depicted in Appendix I. 1. Define the business problem 2. Explore and pre-process the data 3. Develop the Data Model 4. Deploy the knowledge. 5. Translate the business into a problem that can be analysed

4.0 INTELLIGENT SYSTEM TECHNIQUES In addition to different database sizes and the different forms that the information can take, there are also different ways of analyzing relationships and patterns stored in the data, based on open ended user queries. The common types of relationships are: Classification - Stored data is used to locate data in predetermined groups. Clustering - Data items are grouped according to logical relationships or preferences. Associations - Data can be mined to identify associations. Sequential patterns - Data is mined to anticipate behaviour patterns and trends. This paper will look at how associations using the K-Nearest Neighbour technique can be used in intelligent systems to automate credit risk assessment and stock trading.
4.1 The K-Nearest Neighbour Technique The K-Nearest Neighbour ( kNN) algorithm is a supervised learning approach used in many applications in intelligent systems. It is an instance-based learning, or lazy learning where the functions are approximated locally and all computations are deferred until classification. He, H. et al (1999) stated that, in the k-Nearest Neighbour (kNN) algorithm, the classification of a new sample is determined by the class of its k nearest neighbours. He, H. et al (1999) further stated that, the performance of the k-Nearest Neighbour algorithm is influenced by: (1) Distance metric used to locate the nearest neighbours; (2) Decision rule used to derive a classification from the k-nearest neighbours; (3) Number of neighbours used to classify the new sample The K-Nearest Neighbour algorithm is used to classify a new object based on attributes and training samples. Given a query point, we find K number of objects or (training points) closest to the query point. The classification is done using majority vote among the classification of the K object. K-Nearest Neighbours algorithm Steps: 1. Determine parameter K = number of nearest neighbours 2. Calculate the distance between the query-instance and all the training samples - Euclidean distance (d)
d (i, j ) = (| x i1 x j1 |2 + | x i2 x j2 | 2 + . . .+ | x ip x jp |2 )

where i = (xi1, xi2, , xip) and j = (xj1, xj2, , xjp) are two p-dimensional data objects, and q is a positive integer 3. Sort the distance and determine nearest neighbours based on the K-th minimum distance 4. Gather the category of the nearest neighbours 5. Use simple majority of the category of nearest neighbours as the prediction value of the query

instance 4.2 Benefits of Nearest Neighbour Technique Easiest to use and understand as they work in a way similar to the way that people think, by detecting closely matching examples. It performs quite well in terms of automation, as many of the algorithms are robust with respect to dirty or missing data. The predictions are made at a local level where business simulations could be performed to optimize return on investment. Has a high level of accuracy or lift comparable to other techniques. 4.3 Disadvantages of K-Nearest Neighbour Technique Need to determine value of parameter K (number of nearest neighbours). Distance based learning is not clear which type of distance to use and which attribute to use to produce the best results. Computation cost is quite high because the distance of each query instance to all training samples has to be computed. 5.0 INTELLIGENT SYSTEM APPLICATION To assist in decision making, the intelligent system to be implemented, should offer classification in the classes of categorical dependent variables from their measurement of one or more variable using the KNearest Neighbour technique. 5.1 Automated Credit Risk System In the current recessionary economy, businesses cannot afford to be without a credit automation system to help drive revenue growth and reduce costs associated with credit risk. According to Lepus (2007), of the people in the IT industry interviewed, 38% stated that technology plays a significant role in enabling active portfolio management and assessment in credit risk. 5.1.1 Expectations of Automated Credit Risk System No single credit risk rating system is ideal for any institution. The attributes described below should be present in all systems, but how the businesses combine theses attributes to form a process will vary. The system should be integrated into the businesss overall risk management portfolio. The board of directors should approve the credit risk rating system and assign clear responsibility and accountability for the risk rating process. The board should receive sufficient information to oversee managements implementation of the process. The system should support managements and the boards decision making. The criteria for assigning each rating should be clear and precisely defined using objective (e.g., cash flow coverage, debt-to-worth, etc.) and subjective (e.g., the quality of management, willingness to repay, etc.) factors. Ratings should reflect the risks posed by both the borrowers expected performance and the transactions structure. An example of an Automated Credit Risk System is the i-flex solutions described in Appendix III 5.1.2 Benefits of Automated Credit Risk System The following benefits will accrue to the business due to the automation of its credit risk functions Customers with higher risk can receive higher pricing directly contributing to top line growth. Businesses will not miss revenue opportunities. Increased revenues that result can be used to accrue higher bad-debt pools to offset risk. Improved customer service keeps customers from walking away from business. 5.2 Automated Stock Trading Previously stockbrokers had to present themselves on the trading floor and shout out their orders on behalf of their clients. This was later replaced by an electronic trading system where stock trading could now be done real time and on line. According to Mbaru. J (2006), an automated stock trading System is designed to electronically match buy and sell orders in a transparent process

The electronic markets use vast computer networks to match buyers and sellers, rather than human brokers. While this system lacks the romantic and exciting images of the floor, it is efficient and fast. Many large institutional traders prefer this method of trading. The individual investor can also frequently get almost instant confirmations on their trades. It also facilitates further control of online investing by putting the investor one step closer to the market. An example of an Automated Stock Trading Application is the Millenium Exchange Software shown Appendix III 5.2.1 Advantages of Automated Stock Trading Transparency - The systems can disseminate real-time pre- and post-trade information market-wide. Confidentiality - Eliminates pre-trade information leakage, enabling users to specify precise orders without giving away potentially valuable information to competitors. Operating Costs Direct trading reduces some of the set costs of business. Domowitz and Steil (2001a) show such reductions have typically been 50-75%. Set up Costs Electronic systems setup costs are much lower than creating trading floors. Price Time Policy The system operates on a strict price time priority as all buy orders received on the system are sorted with the best-priced order getting the first priority for matching with an incoming market sell order Information Real time already processed data on order depth in a security, last traded price, and quantity traded during the day is availed, allowing traders to make informed decisions regarding price and order quantity.

6.0 EVALUATION OF INTELLIGENT SYSTEMS

Copock (1997) states that the, successful implementation and usage of intelligent systems will involve the following 1. Articulating the business need that will be solved by the system 2. Availability of the right quality and quantity of data 3. Formulating the actionable deliverables with the end user and people in charge 4. Communicating the derived insights to the key stake holders 5. The system should be in line with the business objectives and policies 6. Project should have a sponsor and champion 7.0 SHORTCOMIGS OF INTELLIGENT SYSTEMS Though the use of intelligent systems is very attractive, it poses a few problems as well which are; Number of iterations To reach the required level of accuracy the system may need to undergo a large number of iterations which can prove to be expensive in terms of time and system resources. Over fitting It is difficult to check beforehand whether the model or training dataset is robust with respect to small variations in input value Weighting Since the procedure is based on machine-learning, the weighting scheme is not always amenable to financial interpretation. The interpretation is only based on a structural relationship and cannot be explained by financial arguments. System Integration - The setup and running of such systems require very high level of analytical and technical skills

8.0 CONCLUSION
This paper presents how intelligent systems can be used in the automation of two local business scenarios namely risk management and stock trading. When certain conditions are met the system is guaranteed to achieve the desired business outcomes. The system reduces the decision making tasks and time taken to undertake the identified business functions. Although the scenarios studied are quite different, they share the same conflict resolution mechanism. The mechanism requires that the user sets up or accessing an exiting database as a training to elicit a desirable outcome or decision of the query at hand. Efficient organisation of the data in a data warehouse coupled with efficient and scalable data mining allows the data to be used correctly and efficiently to support company decisions. If deployed correctly and effectively, intelligent systems can be a value-enhancing activity that goes beyond regulatory compliance and can provide a competitive advantage to institutions that execute it

appropriately.

REFRENCES
Berry, M and Lindoff, G, (1997) Mastering Data Mining, John Wiley & Sons - 1997 Coppock, D. S. (2003) Data Mining and Modelling : So You have a Model, Now What? DM Review Magazine, Feb 2003. Domowitz, I & Steil, B (2001a): Automation, trading costs, and the structure of the securities trading industry, Brooking-Wharton Papers on Financial Service, 1999, pp 33-81). Giudici, P. (2003) Applied Data Mining, John Wiley & Sons Ltd Harris, M. (2002) Price Pattern Autopilot, Active Trader Magazine, Sep. 2002, Vol. 3, No 9, pp. 70 He, H. et al (1999) Application of Genetic Algorithm and K-Nearest Neighbour Method in Real World Medical Fraud Detection Problem, Journal of Advanced Computational Intelligence and Intelligent Informatics, Vol.4, No.2 pp. 130-137, 2000 Hermiz, K.B. (1999) Critical Success Factors for Data Mining Projects, DM Review Magazine, Feb 1999. http://www.iflexsolutions.com (Assessed December 2007) http://www.lepus.co.uk/default.asp , Role of technology in credit risk management (Assessed Dec 2007) http://www.occ.gov/handbook/RCR.pdf , Rating Credit Risk, Comptrollers Handbook, April 2001 (Assessed on December 2007) Kathuri, B. (2006) NSE Electronic Trading Date Set, The East African Standard, Published on June 21 2006 Mestchian, P. (2004) Credit Risk Management in the Financial Services Industry International benchmark survey conducted by SAS and Risk magazine June 2004 Nourani, C.F. (1995) lntelligent And Multi Agent Object Level Computing: The Preliminary Overview. ACM SIGPLAN Notices, 30(2). Zaima, A. & Kashner, J. (2007) Data Mining Primer for the Data Warehouse Professional, Copyright 2004-2007 by Teradata Corporation

APPENDIX
Appendix I: Developing an Intelligent System - Illustration

Appendix II: Article 1

December 17, 2007 http://www.eastandard.net/archives/?mnu=details&id=1143977686&catid=14 Shillings & Sense

The benefit of credit rating and referencing

-------------------------------------------------------------------------------Published on November 19, 2007, 12:00 am By John Ndegwa David Wahinya sauntered into a bank seeking a Sh300,000 loan to expand his video services business. Armed with the confidence that his business was doing well, and the fact that banks have been dishing loans, he did not anticipate any drawback. NO CASH: Banks often turn away prospective borrowers who have no pay slip or security. To his surprise, though, he was informed that he needed to deposit his pay slip with the bank or come up with collateral. He had neither, and as he walked out of the banking lobby he could not figure out how banks operate he was mesmerised by their marketing communications that depict that credit is available for all and sundry. "I started my business from a small loan I procured from a micro finance institution (MFI) without any conditions. Now banks are asking for a pay slip or collateral to give me credit," he told Shillings & Sense at his studio in River Road, Nairobi. Wahinya is not alone in this quagmire. There are many individuals and small and medium enterprises (SMEs) that have been turned away by lenders on the basis that they do not have any security. A survey by the Government a few years ago established that 90 per cent of SMEs have no access to any form of credit. The situation is worse for individuals. No niceties Forget that commercial banks are copiously liquid and have literally been begging clients to take up loans. Forget also that some are even hawking their services on the street and encroaching on pavements. Security, whether a pay slip for unsecured loan or collateral for a secured loan, is one requirement they have religiously demanded. "In Kenya banks are still lending based on collateral," says Mr Sam Omukoko, the managing director of Metropol East Africa Ltd, a credit rating and reference firm. This, however, is an obsolete criterion of accessing an individuals or an SMEs level of creditworthiness. This is because whereas an SME, for instance, might lack collateral when in need of credit, its business fundamentals might be enough in unlocking the doors for credit. This is why in September all credit reference bureaus (CRB) in the region came together and established the East Africa Credit Bureau Association, with one of its main objectives being to harmonise the interests of stakeholders who include lenders and borrowers. According to the association, resolving information irregularity through embracing credit referencing remains the key to unlocking the potential of the countrys credit market and thus a critical impetus for economic growth. "The essence of credit rating and referencing is to change the perception among lenders that SMEs and individuals are high-risk borrowers," explains Omukoko. But how will this help someone like Wahinya and many others? According to Omukoko, it is important to differentiate credit rating and credit referencing. While credit rating is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed, credit referencing entails collating, compiling and reporting on the payment performance record of consumers of credit. Credit referencing thus rotates around data sharing on the credit histories of borrowers and resembles a default list. There are three CRBs in the country Metropol, Trans Union Kenya and CRBAfrica but their work has been hampered by lack of a law to steer their operations. This has made information sharing between banks and other

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credit grantors impossible, in the process frustrating efforts to come up with a database of defaulters. Although credit referencing would save banks the trouble of extending loans to individuals and SMEs with histories of defaulting and thus minimise their soaring non-performing loans, credit rating provides individuals and SMEs with the weapon to access credit. "Credit rating is an independent assessment of an entity to determine its credit worthiness and the probability of default on the credit facility," explains Omukoko. The rating involves collating of data of an SME. These include years of operation, turnover, experience, size of business, technology savvy, credit history, office location, peoples perception among other factors. Also critical is the science of credit, commonly known as the 5Cs. These are character, capital, capacity, condition and collateral. Character is defined as the willingness to pay, capacity as the ability to generate cash flow, condition as the external and internal matters that can affect credit performance, capital as how the risk is to be shared while collateral is in the event of unforeseen circumstances leading to loss, how the lender can recover his money. With this information Metropol then develops a hypothesis of the SME based on a number of factors, key of which is the empirical data it collected from banks on credit behaviour of SMEs. This is followed by a regressional analysis taking into account each attribute of the business. The information is then subjected to a scientific rating engine, which is 90 per cent accurate, and awards the business a score. The score varies from AA for an SME that is highly likely to repay a credit facility and FF for an SME that is likely to default. For individuals the process is the same but the departing point is that the score ranges between 200 and 900. Metropol developed this scoreline on the supposition that taking into account all the attributes of an individual seeking credit like age, professional qualification, experience, residential area among others, one cannot score less than 200 marks. For individuals the cutoff mark is 400, meaning that anybody scoring more than 400 is most likely to repay a credit facility extended to him. Omukoko says every SME or individual who is rated is issued with a certificate that is varied for one year and which is effectively a weapon that can be used to access credit. "A favourable rating makes it easy for SMEs and individuals to access credit," he states, adding that it purges the myth that these categories of borrowers are generally high-risk. More importantly, it also gives SMEs and individuals the authority to negotiate for better credit terms. For instance, an SME that has a history of repaying its credit should not be measured in equal terms with one with a track record of defaulting. It also helps in putting a ceiling to the amount of credit one might require, thus shielding the SME or the individual to over-exposure to credit facilities. "There are many institutions chasing people around to give them credit. Its important to know your limit," notes Omukoko. He adds that even banks and other lenders also get to benefit from rating. Currently it takes a minimum of one week for most banks to approve a loan application. During this time banks are usually busy trying to verify the information provided by the borrower and dangle on whether to take the risk of extending the credit. Yet for an SME or an individual who have been rated, the turnaround time for making a decision is extremely reduced because the bank already has the profile of the borrower. "Lenders experience many troubles in accessing SMEs. Rating provides them with ready information," he avers.

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APPENDIX II - Article 2
http://www.eastandard.net/archives/?mnu=details&id=1143965394&catid=49 (Accessed 24 December 2007)

The dark side of Nairobi Stock Exchange

-------------------------------------------------------------------------------Published on February 27, 2007, 12:00 am By Washington Gikunju When the Nairobi Stock Exchange (NSE) switched to electronic trading in November 2004, market players hailed it as the solution to all transaction hitches that earlier bedevilled the bourse. And they were not wrong, at least not entirely wrong. Trading volumes soared and the settlement period continued to decline, from two weeks before installation of the system to the current two working days. It was also praised as being more transparent than the previous manual system. But it now seems that Kenyans should not have taken their word for it. What begun as a positive reform to spur trade has unrolled into a monster that threatens the core foundation of the regions biggest capital markets. Brokers violating the rules Two years after the Central Depository System was put in place, it now emerges that brokers are violating market rules to make a kill by trading on their clients shares without approval. At the centre of the crisis is a new system that has given the brokers free access to their clients investments, unlike in the past where share certificates, a crucial document that was required for any transaction, was held by the investor and would only be surrendered when the investor wanted to liquidate his stocks. Insiders term the revelations as a "time bomb" which could destabilise the market. Last week, FS established that a number of investors have already filed grievances with the Capital Markets Authority (CMA), complaining of brokers who are dealing in their shares without their authority. Loosing investment The trick has been that the dealers sell the shares when they hit a certain peak without the shareholders consent, only to replace them when the prices dip, making a killing in the process. "The rules clearly state that any broker should only deal in an investors shares with his authority, but I cannot rule out the possibility of this happening," responded Mr Peter Waiyaki, the Chief Executive of the Central Depository and Settlement Corporation. There are even allegations of stock market dealers who have become overnight millionaires out of such deals, exploiting the loophole in the CDS and the Automated Trading System. In the process a number of investors, oblivious of this machinations, may have lost their life time investments. Mr Daniel Mwaniki is one such victim of exploitation by the unethical brokers. After being a client for over 22 years at the now ailing stock brokerage firm, Francis Thuo and Partners Ltd, Mwaniki was shocked when he noticed that his broker, without his consent, had sold his 4,000 National Bank of Kenya shares valued at over Sh200,000 in January this year. Upon making an enquiry, one of the firms directors, Mr Peter Thuo, hastily credited Mwanikis account with 3,000 NBK shares and bought him an additional 1,000 shares at a cost of Sh40,000. A short text message from the director to Mr Mwaniki reads thus: "We have put back in your account 4,000 NBK shares as agreed. Thank you. Peter Thuo."

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Thuo could not be reached for comment, he was said to be in daylong meetings with the CMA. His two mobile phone numbers were switched off for much of last week. A colleague here at the Standard Group also had his shares sold by another broker without his authority or sale order. No action from regulator The most unsettling thought, however, is that all this is happening with the knowledge of the Central Depository and Settlement Corporation (CDSC), the legal custodian of shareholders investments and the market regulators the state owned Capital Markets Authority (CMA). As early as October 12, last year, Waiyaki was quoted in a local daily as saying that it is "technically possible" for a stock broker to initiate a transaction without consent, and warned that shareholders should question any suspicious transactions reflected in their statements. When confronted with the current complaints, Waiyaki, reluctantly admitted that he could not rule out the possibility of unethical brokers dealing in investors shares without consent. No verification Before introduction of the Automatic Trading System at the NSE, a written authorisation and a share certificate from the shareholder was required for any dealing in an investors shares to be effected. With the introduction of the CDS and the ATS however, this rule, though still existent, has been thrown out of the window. No verification by the shareholder is required before a share transfer is effected. The usual practise is that brokers from the different stock brokerage houses post orders from their clients into the system, which then automatically matches them without any requirement for authorisation by the shareholder. Mr Wellington Mutuku Mbondo is yet another victim of the seemingly un-whetting appetite by these unscrupulous brokers. His four thousand five hundred shares (4,500) of Kenya Power and Lighting Company (KPLC) were sold in January without his consent. He discovered that they had been sold when he got his statement from the CDSC on Friday last week. With each KPLC share trading at Sh278 at close of the market on Friday, last week, Mr Mbondo is facing a possible loss of Sh1.25 million. To make his situation worse, his shares were held with Francis Thuo and Partners Ltd, the stockbroker which has been suspended by the CMA. Big cartel But, the same story is replicating itself in a number of other firms. Mbondo was busy delivering protest letters to the CMA, the NSE and the CDSC the whole of last week. And it might seem that this is not the first time this is happening, his swift action only being prompted by news of suspension of the firm after he read it in The Standard. "This is not the first time it is happening, they have sold my shares before only to replace them after I raised complaints. They must have made millions from trading in my shares, and they seem to prefer shares that are valued at over two hundred shillings, and which have high trading volumes," explained a bitter Mbondo. And with all these storms raging in the capital markets, CMA headed by Mr Edward Ntalami, a seasoned stock broker, seems to have developed an impenetrable shield to any kind of shocks. Desperate investors, especially from Francis Thuo and Partners have been presenting their protests to the body that has often seemed inept even in the face of the deepest of crises.

The most one is likely to get from the Reinsurance Plaza-based body is a received stamp and the issue ends as soon as it is "received". With upwards of Sh700 billion of public investors funds entrusted under their care, the CMA is by all definitions a public institution. A public watch dog fully funded by the tax payer, with unfettered powers to ensure sanity prevails in the countrys capital markets. Public denied information When a member of the public or the media therefore finds it impossible to extract the tiniest of details from the CMA, however well meaning this could be, it then raises serious concerns as to what it is the regulator could be hiding from the public. Several cases in point, starting with the latest of what has been a series of unexplained events: When Francis Thuo and Partners Ltd was first reported to be facing financial difficulties, CMA chose to remain conveniently silent, even as ignorant investors continued to pump more of their funds in what was clearly firm in distress, crying for attention. It took some painstaking investigations to establish and report that the firm had actually been suspended from trading at the NSE. And as if that was not enough, the CMA remained unmoved even after the report went public, prompting the NSE to issue a formal confirmation if only to calm the building tension. CMAs confirmation came belatedly and in a fashion that sought to deny what it was already confirming, no wonder no media house took it to be worth its airtime. The suspension deadline passed quietly on Friday without the CMA giving the necessary guidance. Irregularities Then came the Eveready IPOs first day of trading at the stock market, when a hitch in the system was said to have restricted the share price movement to a rate above 10 per cent. Under normal circumtances the first day of trading of an IPO, the share price can fluctuate by margins of more than 10 per cent of the initial price. Again, the CMA left it to the NSE to explain to the public what was happening. Chiefs at CMA seem comfortable to see NSE take the role of player and regulator in the market. Investors are then left to wonder if NSE is a player in the stock market or a regulator. Then came the mistake that was reported after the CFC bank merger talks that saw the banks share price soar to Sh900. The explanation came fast from the NSE, again this did not prod CMA bosses. The Uchumi case must have been the mother of them all, with a listed company literally going under with shareholders funds and no tangible step or even promise of one having been taken by the CMA to date. It might seem that the current attitude at CMA is one of nothing is new under the sun, do not bother us. Search Archives Copyright MMVI . The Standard Group

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APPENDIX III Sample Automation Intelligent Systems

i-flex Solutions

This software uses the Internal Rating Based approach to implement a model for credit risk taking. The rating system helps in arriving on a decision on whether to undertake or reject the risk based on an data input using an interactive module for consultation with the user, which
collects all the evidence required. The knowledge base consists of data, algorithms and production rules, which will recommend actions or decisions.

On undertaking the risk, the system will automatically recommend credit risk measures such as what amount of the risk should be held as provisions or insured through credit derivatives based on the expected loss. Millenium Exchange This automatic trading system program is developed by the Sri-Lankan based Millennium Information Technology. It is an intelligent system designed to match buy and sell orders automatically. When an order is matched it sends a confirmation of the execution of the trade. The application uses an Automatic Pattern Search that searches data files of historical prices of traded financial instruments for identifying price patterns that fulfil the user defined criteria or risk/reward objectives. The following trading system model for long term positions for profit-target (T) and stop loss (S) can be expressed as a percentage of the entry price as follows, if the inequalities in todays and previous prices is logical
{Time frame: daily} If {long pattern logic} then Buy tomorrow on the open with Profit target price at Entry Price x (1+T/100) Stop-loss price at Entry Price x (1 S/100) End The system will then search for the nearest matching records and prompt the user on its availability and conditions so that buy or sell options can be undertaken. Training Set Data Trade Volume < 100 100 200 201 300 301 -500 > 500 Current Profitability < 30% 31 50% 51 70% 81 100% > 100% Consecutive Loses > 10 97 64 31 0 Consecutive Gains 0 31 64 97 < 10 Classification E D C B A

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