NSE automated system holds firm on KenGen bond

Freshly listed KenGen infrastructure bond will trade alone on the new automated trading system until other government and corporate bonds are converted into electronic accounts, NSE chief executive Peter Mwangi said .

Other bonds will continue to trade manually until they are converted (immobilised) into electronic bond depository accounts, said Mr Mwangi.

“The manual system will run concurrently with the automated bond trading system pending the completion of immobilisation of all bonds,” he said.

The stock exchange set in motion the process of automating trading of all bonds on Monday by uploading the Sh25 billion KenGen debt paper onto the new automated trading system (ATS).

Under the ATS, investors who wish to buy or sell bonds through the stock exchange will now be able to close their transactions within three days, an improvement on the current manual system which takes up to seven days to complete a bond transfer.

Automatic trading in more advanced markets where bank transactions are done on a real time basis is concluded within one working day.

Dealers in stock brokerage houses and investment banks had said on Monday they could not trade treasury bonds on the new system, but the NSE clarified yesterday that the system was functioning as intended.

“The automated trading system is trading without any hitches,” said the NSE chief executive Peter Mwangi.

“The only fixed income security that has been uploaded and is trading on the automated system is the KenGen bond.”

The KenGen bond which has a fixed interest rate yield of 12.5 per cent per annum saw Sh77 million traded on Monday.

Treasury bonds account for about 92 per cent of Kenya’s Sh385 billion bond market (inclusive of the KenGen paper), and account for the bulk of trading at the NSE’s secondary market.

Mr Mwangi said the Central Bank of Kenya’s central depository system which holds all treasury bonds was already interlinked with the NSE’s trading system-but added that the formal launch of automated trading of government bonds would be made later.

Market players expect shifting of bond trading to the ATS to raise trading volumes as investors will have fewer procedures to comply with.

The Bond Traders Association chairman, Fred Mweni, says annual trade volumes could shoot to Sh1 trillion on ATS from this year’s projected trade volume of about Sh200 billion.

The Capital Markets Authority (CMA) had declined to approve commencement of automated bonds trading early last week saying there were no rules in place to regulate the new system.

But the NSE said on Monday it had met all the regulatory requirements.

The CMA chief executive Stella Kilonzo said the market regulator would assist the exchange to complete automation of the bonds trading process.

The process of automation started in 2004, with the first phase being launched in 2006 when automated trading of shares using Central Depository System (CDS) accounts went live.