The Central Bank of Kenya has rejected the East African Bond Exchange’s bid to trade government bonds, focusing instead on integrating market makers to improve liquidity. Ongoing negotiations highlight the tension between new market initiatives and established securities trading practices. The situation reflects a broader strategy to regulate bond trading effectively while expanding access for retail investors.
Kenya’s Central Bank (CBK) has refuted the establishment of a new trading platform for government bonds, known as the East African Bond Exchange (EABX), which is owned by commercial banks. This platform was intended to work alongside the Nairobi Securities Exchange (NSE), but CBK seeks to stabilize bond prices by engaging market makers, wealthy individuals and firms that foster liquidity in bond trading.
EABX, approved by the Capital Markets Authority (CMA) to create an over-the-counter (OTC) bond trading system, must connect its infrastructure to CBK’s online portal, DhowCSD, to facilitate transactions involving government securities. However, ongoing negotiations has left EABX’s plans for government bond trading uncertain, as CBK prioritizes a market makers program.
Market makers are essential for maintaining liquidity in the trading environment, ensuring that investors can buy and sell securities effectively. As bonds significantly contribute to the government’s revenue-generating activities, the Nairobi Securities Exchange has reported a bond turnover averaging Ksh734 billion ($5.68 million) annually from 2020 to 2023.
The CBK’s opposition to the EABX accessing the DhowCSD registry stems from concerns of market distortion due to dual trading platforms. EABX CEO Terrence Adembesa expressed optimism about resolving issues with the central bank and highlighted EABX’s goal to enhance liquidity and governance in Kenya’s fixed income markets.
A CMA source indicated that EABX is finalizing technical requirements for connectivity with CBK’s systems. Meanwhile, previous revenue-sharing agreements between NSE and the Central Depository and Settlement Corporation have been revoked following CBK’s launch of its own bond trading platform, effective August 1, 2023. This platform democratizes access to Treasury bonds via mobile services, broadening participation beyond established investors.
The recent discussion within Kenya’s financial sector involves the Central Bank of Kenya (CBK) rejecting a new bond trading platform, EABX, which commercial banks support. As a response, CBK is focusing on engaging market makers to improve liquidity and stabilize government bond prices. The regulatory landscape is evolving, with CBK emphasizing the need for transparency and efficiency in bond trading, aligning with global trends toward market-making practices.
In summary, the CBK’s decision to stop EABX from accessing government bond trading aims to maintain market integrity and enhance liquidity through investor engagement. The ongoing negotiations between EABX and CBK signify a critical moment for the future of bond trading in Kenya. Improved connectivity and collaboration could facilitate a more dynamic trading environment while ensuring that the bond market remains stable and transparent.
Original Source: www.zawya.com
