In a strategic move set to revolutionize Kenya’s bond market, the Nairobi Securities Exchange (NSE) has secured approval from the Capital Markets Authority for amendments to its Fixed Income Trading Rules. This pivotal development heralds the establishment of a hybrid fixed-income market, blending onscreen and Over-the-Counter (OTC) trading of fixed-income securities.
The NSE’s Chief Executive Officer, Geoffrey Odundo, hailed the decision as a decisive leap towards enhancing Kenya’s bond market efficiency and appeal to investors. This hybrid model is poised to intensify competition in the bonds market, particularly with the recent approval granted to the East African Bond Exchange (EABX) for an OTC trading platform.
Traditionally, OTC markets facilitate direct trading between parties without involving a formal securities exchange. With Kenya’s bond market boasting an average turnover of nearly KSh 734 billion, the emergence of a hybrid model offers significant opportunities for both the NSE and EABX to vie for market share.
Crucially, the hybrid framework integrates pre-trade transparency enhancements, such as a Quotations Board, fostering informed decision-making among investors. Real-time daily yield curve launches further augment market visibility, while the fusion of onscreen and OTC trading avenues bolsters market liquidity and depth.
To ensure the seamless settlement of OTC transactions, the NSE mandates reporting by licensed entities under the Capital Markets Act, mitigating settlement risks associated with OTC trades. Collaborations with the Central Bank of Kenya and the Central Depository and Settlement Corporation underscore NSE’s commitment to efficient bond settlement mechanisms.
Geared towards fostering a dynamic and resilient fixed-income market, the introduction of a hybrid model underscores NSE’s commitment to innovation. This initiative not only caters to investor needs but also fortifies Kenya’s financial ecosystem, heralding a new era of efficiency and vibrancy in the bond market.
By: Delino Gayweh
Serrari Financial Analyst
February 8, 2024
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