In a significant development, the Capital Markets Authority (CMA) has approved the application for an Over-the-Counter (OTC) trading license by the East African Bond Exchange (EABX), setting the stage for increased competition in Kenya’s bond market. The approval, granted on Tuesday, positions EABX to vie with the Nairobi Securities Exchange (NSE) for bond market dominance, with an annual turnover averaging Sh734.0 billion between 2020 and 2023.
An OTC market facilitates direct trader interactions without the need for a formal securities exchange. All transactions are electronically captured and conducted bilaterally between engaged parties, without intervention from established securities exchanges.
This move follows closely on the heels of the International Monetary Fund’s (IMF) Staff Report, which, after the January 17, 2024, sixth review of Kenya’s $4.43 billion (Sh717.3 billion) program, revealed the government’s commitment to establishing an OTC automated exchange to complement NSE operations.
The government pledged to the IMF, stating, “We will further enhance the market infrastructure through policy support to market participants to operationalize an over-the-counter automated exchange to complement the broker-intermediated Nairobi Securities Exchange.”
EABX’s OTC market marks its third milestone, following a no-objection approval for setup in 2020 and capital-raising approval in 2023. The introduction of an OTC market for bond trading aligns Kenya’s fixed-income activity with Nigeria, where the Nigeria Stock Exchange and FMDQ Group operate side by side, the latter focusing on OT bond trading since 2012.
Despite Kenya’s initial lead in bond market reforms a decade ago, the CMA has acknowledged Nigeria’s leapfrogging success due to its well-established OTC bond trading market. Luke Ombara, CMA’s Director for Policy and Market Development, highlighted the potential of OTC trading, emphasizing its less onerous requirements compared to centralized exchanges.
The NSE, which garnered an average of Sh73.2 million per annum in bond levies over the last two years, may face revenue loss if bond market activity shifts toward EABX. Bond dealers in brokerage entities also stand to be affected should the OTC market gain traction and foster direct engagement between traders.
This development comes amidst the NSE grappling with subdued activity in the equities market and represents the second major change in Kenya’s bond market in under six months, following the launch of the online bond trading platform, DhowCSD, on September 11, 2023, by President William Ruto.
By Delino Gayweh
Serrari Financial Analyst
February 1, 2023
Article and News Disclaimer
The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.
The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.
The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.
Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.
Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.
By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.
www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.
Serrari Group 2023
