The Nairobi Securities Exchange (NSE) has received regulatory approvals to run over-the-counter (OTC) bond dealings alongside the existing onscreen trading.
In OTC trades, bond buyers and sellers deal with one another directly, including negotiating prices.
The approval, which amends the Capital Markets Authority (CMA) fixed-income trading rules, transforms the NSE secondary bonds market into a hybrid fixed-income market.
The nod comes hot on the heels of CMA’s approval of East African Bond Exchange Plc (EABX) to operate as an OTC securities exchange, setting up the two firms for rivalry in domestic secondary bond trading.
EABX will operate as a securities exchange, providing secondary trading, membership, listing and market data services for debt securities.
The NSE and EABX are expected to jostle for a share of the secondary bond market, which traded Sh651.1 billion worth of securities last year.
“The decision to operationalise a hybrid fixed-income market marks a decisive strategic leap in our efforts to broaden and enhance the efficiency and appeal of Kenya’s bond market to investors.
This development is part of our enterprise-wide innovations aimed at aligning our infrastructure capabilities with evolving industry trends,” said NSE chief executive Geoffrey Odundo.
“The hybrid fixed income market represents a forward-looking initiative to create a more dynamic and resilient fixed income market that can better serve the needs of both investors and the broader financial ecosystem.”
The NSE said the hybrid model would improve pre-trade transparency by introducing a quotations board, providing investors with increased visibility into market quotes.
Additionally, the duo-pronged marketplace will provide participants with different ways of executing trades, increasing the liquidity and depth of the market.
The NSE says it also plans to launch a real-time daily yield curve that factors in the activities of the quotations board and those executed in the market.
Bond deals closed in the OTC platform by authorized security dealers will still require mandatory reporting as a guarantee to settlement of transactions.
The NSE has collaborated with the Central Bank of Kenya (CBK) and the Central Depository and Settlement Corporation (CDSC) to oversee the settlement of both government and corporate bonds.
The OTC transactions involve bilateral negotiations and trading through dealer networks.
The green light for OTC bonds trading aligns with the government’s goal to enhance market infrastructure.
“The aim of the exchange will be to promote trading transparency and settlement efficiency and attract more capital in the economy eventually leading to reduction of yields and cost of new public debt issues later in the year (2024),” the National Treasury and CBK told the International Monetary Fund in a December 2023 letter.
