Capital Markets

NSE targets big investors with new trading board

nse

Nairobi Securities Exchange has opened a new restricted trading board for fixed income securities targeting high net worth individuals and institutional investors in a bid to raise bond turnover. PHOTO | FILE

The Nairobi Securities Exchange (NSE) has opened a new restricted trading board for fixed income securities targeting high net worth individuals and institutional investors in a bid to raise bond turnover.

The introduction of the board comes at a time when stockbrokers are bracing for an assault from banks after the Capital Markets Authority (CMA) issued them with licences to trade directly in securities.

READ: Stockbrokers rattled as banks take over bond market billions

With the restricted trading targeting major holders of bonds, stockbrokers could retain a significant portion of the fixed income securities business.

The NSE said the restricted board would only be used for fixed income trades targeting sophisticated investors who include high net worth individuals, collective investment schemes, banks and their subsidiaries, co-operative societies, pension and retirement funds.

“This is a significant step towards ensuring that our issuers, institutional and individual investors gain access to a more diverse secondary market. With this development, we look forward to listing a more diverse variety of debt securities, including senior unsecured fixed rate notes and equity-linked notes on our fixed income market segment,” said NSE chief executive Geoffrey Odundo.

Unsecured fixed-rate notes are similar to debentures but offering higher rates of return. Equity-linked notes are debt instruments whose final payout is determined by the performance of a basket of stocks or a single equity security.

It can also be based on an equity index such as the NSE 20 or FTSE NSE 15. The equity-linked notes would particularly appeal to companies undertaking infrastructure projects.

Centum Investments, which is investing heavily in power generation and real estate development, in May issued a Sh6 billion bond, part of which was an equity-linked note.

For market intermediaries, the new rules offer a chance to hold on to some of the trading that would have been lost to banks, which hold 55.9 per cent or Sh793 billion worth of government domestic debt that currently stands at Sh1.42 trillion.

“Allowing commercial banks to buy and sell the securities without any intermediaries will definitely deprive us of business. But the market will also be denied the ability to get the best prices for the securities on the basis of supply and demand,” Faida Investment Bank managing director Bob Karina told the Business Daily last week.