Chase Bank becomes first bank to deal in treasury bonds

The Capital Markets Authority (CMA) has approved mid-tier Chase Bank as the first authorised securities dealer, meaning it can bypass brokers to trade directly in bonds.

With the licence, the bank can buy and sell bonds in the secondary market as well as underwrite issues of such securities.

Commercial banks have been pressuring the CMA for years to be allowed to trade and buy bonds without going through brokers, in a bid to save on the 0.035 per cent turnover commission.

The licence is separate from the dealer’s licence given to some brokers who trade on their own accounts whose transactions must always go through their brokerage arm under Chinese wall rules.

“The approval will enable the applicant to carry on the business of buying, selling, dealing, trading, underwriting or retailing of fixed-income securities,” said the CMA in a statement issued on Tuesday.

The regulator said it had reviewed the bank’s application and was satisfied Chase Bank had met the legal requirements.

“I see this as the first of many other banks being allowed to be authorised securities dealers. But brokers will continue to have their role in the market,” said Paul Mwai, the chief executive of AIB Capital.

In the past brokers have resisted any move to let banks sell bonds directly in the secondary market since it would deny them commissions.

In the performance of its role, the authorised securities dealer (ASD) is expected to be willing to buy and sell a specific security on a continuous basis as well as be able to originate securities, which it can then buy or sell to investors.

The introduction of the ASDs is one of the objectives of the CMA to deepen the securities market under the Capital Markets Master Plan currently being implemented in a 10-year initiative.

The Treasury has recently announced that it would allow primary bond market investors to apply for securities with as low as Sh3,000, as part of the plan.