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Kenya automates bond market

NAIROBI, Kenya, Nov 9 – On Monday, the Nairobi Stock Exchange (NSE) had its first ever Public Infrastructure Bond by a corporate, KenGen, traded on the bourse. For the first time ever in the East and Central African stock markets, bond trading is now a fully automated process.

NSE Chief Executive Officer Peter Mwangi remarked: “From this day forward, all immobilised listed bonds, such as the KenGen bond will trade in an end to end automated capital acquisition platform, right from the placement of orders, to matching and finally settlement. This is basically what has been implemented.”

The Automated Trading System (ATS) of the NSE has been linked to the Central Depositories of the Central Bank of Kenya (CBK) and the Central Depository and Settlement Corporation (CDSC).

The NSE First Vice Chairman Lutaf Kassam who was also at the listing ceremony noted that automation of the bond market and its resultant benefit was not solely a capital markets issue. “At its core automation is the key that will unlock the much needed capital required to stimulate this economy. Automation is really about ensuring easy flow of information so as to allow market players, investors and potential issuers to make informed decisions. The ability to effectively capture and distribute this data is best done through an exchange platform, which ensures the objectivity of the data relayed.”

The KenGen bond is currently the only corporate bond that has been immobilised, thus it trades through the ATS. This basically means that because KenGen gave its bondholders the option of having Share certificates or CDS accounts, the bondholders are at liberty to utilise either the manual trading system or the automated system. However, it is important to note that an overwhelming 91 percent selected to have their bond certificates immobilised.

Other corporate bonds, which were issued during the manual trading environment, are also able to utilise the automated platform. “Corporate bond issuers will require to first request their bondholders to immobilise their bond certificates through an approved immobilisation timetable done in conjunction with the CDSC,” clarified Mr Mwangi.

The automated environment will greatly facilitate an informed retail investor base. The availability of real time data streaming from the transactions will open up the bond market mechanics to them, and demystify this area. Further, the ability to guarantee a settlement time of T + 3 for corporate bonds and T + 0 for government bonds will go a long way in facilitating liquidity in the market.

Mr Kassam thanked the investing public for their show of support through choosing to have their bonds traded electronically. “It is for us an indication of the faith they have in our trading platform system. Market confidence is really about the relationship between robust systems, an informed investor base and the ability of a market to deliver a reliable, efficient and objective price discovery mechanism. In the end, market confidence is best served through an automated environment,” he reiterated.

The stock markets CEO however noted that progress in the capital markets was crucial owing to the dynamic nature of this particular field. “Caution must be tempered with practicability so as not to stifle improvements in the market. Our ships must be prepared and ready to ride the rising tide of opportunity and change,” he urged the attending market participants. 

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The first day of trade of the ATS system for bonds ran without a hitch. With the exception of a minor clarification on the pricing schedule which the sponsoring stock broker quickly and timely clarified, the interest in the KenGen Public Infrastructure Bond (PIB) was tangible. A deal worth Sh77 million was transacted today and it is expected that more deals will be concluded in the coming weeks.

(Compiled by Diana Gichaga (NSE) and Emma Wenani (NSE) for  

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