NAIROBI, Kenya, Nov 9 – The Capital Markets Authority (CMA) on Monday approved the trading of bonds on an Automated Trading System (ATS), following extensive consultations held over the weekend.
This came as a sharp turnaround of events, as the regulator had on Friday blocked the automation of bond trading at Nairobi Stock Exchange.
The system was also expected to be tested last Friday but did not happen, fueling speculation by investors.
The regulator had wanted the NSE, Central Depository and Settlements Corporation (CDSC) and Central Bank of Kenya (CBK) to sign binding agreements to regulate relations between them and facilitate operations of the bonds ATS.
CMA had also wanted the tightening of trading procedures meant to seal potential loopholes for unethical trading practices. The approval of the ATS coincided with the launch of trading of KenGen’s public infrastructure bond.
Speaking during the listing of the Bond, NSE Chief Executive Officer Peter Mwangi said the ATS would be linked to the Central Depositories of Central Bank and that of the Central Depository and Settlement Corporation implying that all immobilized listed bonds would trade in a fully automated platform.
“With automation, investors will have their bonds bought and sold right from placement of orders to matching and settlement,” he said.
And it seems the system is bound for good time as the first 15 minutes of trading of the KenGen bond saw it trading a volume of Sh77 million.
One of the selling points of the KenGen infrastructure bond, was that investors would have the opportunity to trade off the bonds on an automated system which saw the bond oversubscribed 77 percent raising Sh26.6 billion.
Before automation, bond trading was done manually through an open-outcry system and the new method was expected to improve efficiency and reduce the number of days trading and settling bonds in the secondary market.
It entailed a lot of paper-based ownership transfer, which many blamed for having slowed growth of Kenya’s bonds market. Transactions on the old system were done in seven-days but automation is expected to cut that down to one day.
The new system is also expected to improve confidence that has already been exhibited for the bond market. It has so far raised Sh285 billion excluding both the KenGen and Safaricom bond.
The rapid increase in average equity trade volumes at the stock market has been attributed to transactional efficiency that was to come with the new system and market players were expecting the trend to reflect in the bond market.
Bond Traders Association Chairman Fred Mueni expects automation to push this number to Sh500 billion.
“We would like is a situation where we are dealing with figures like Sh1 trillion like most developed economies that use automation,” Mr Mueni said.