NAIROBI, Kenya, Dec 7 – Retail investors will now be able to buy and trade in smaller amounts of government bonds at the Nairobi Stock Exchange (NSE).
This follows the official launch of the Automated Trading System (ATS) for Treasury Bonds which provides the investors with the relevant information needed to participate in the market, which now has greater efficiency and transparency.
“Automation is really about creating transparency, enabling investors to start on equal footing by readily availing the information they require to make trades,” said NSE Chairman Eddy Njoroge during the ceremony on Monday.
He added that the bonds turnover would also increase significantly as investors would have the confidence that they are getting the ideal prices.
The 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) thus creating a seamless trading platform.
Since the automation of trading on November 27 2009, the average weekly volumes for the government bonds which account for 95 percent of trade volumes have doubled from Sh1.5billion to Sh4.2billion as at December 4.
The increased volumes have also been witnessed in the corporate sector after the launch of the KenGen infrastructure bond which is the only corporate bond that is trading on the ATS.
The secondary market has largely been inactive in the past due to the inefficient open outcry manual system and has seen only 11 trades between January and October with none traded from June to October.
However the government has been able to raise Sh54 billion this year alone while corporate issues have raised Sh36billion thus underpinning the bonds market as an effective avenue for sourcing long term debt.
CBK Governor Prof Njuguna Ndung’u called upon corporate bond issuers to take advantage of the platform and assured that they would continue to monitor the operations of the system to ensure they work optimally.
“We at the Central Bank will continue to review the operations of the system and related processes to ensure that they meet the expectations of investors and conforms to best practice in the market. We stand ready to revise them. Nothing is cast in stone,” he said.
The Governor asked market players to carry out their functions professionally by observing the highest standards of integrity and transparency.
But while the bond dealers welcomed the move, which they acknowledged would go a long way in developing the country into a financial hub, they asked the Capital Markets Authority (CMA) to adjust downwards the brokerage amount of 0.04 percent that is applied to all bond transactions.
The (secondary bond) turnover is expected to greatly surpass the volume in equities and hence bring with it new challenges thus the need for the CMA to intervene, said Standard Chartered Bank dealer James Mutuku.
“I would like to call on the CMA to review the cost of doing business in the secondary bond market also as a way of encouraging more participation from institutional and individual players in the market,” Mr Mutuku added.
He hoped that the launch of the ATS would also facilitate the trading of REPO (repurchase agreements) market outside the banking sector and spread liquidity in the market. In this market, the seller repurchases the asset at the same price at which he sold it, and pays interest for the use of the funds.
Mr Mutuku said could be done by setting up a bond clearing house which would also facilitate the short selling of bonds.
“We believe this will deepen the bond market as well as ensure international participation of bond players in the Kenyan market,” he said while urging industry players to consider those measures.
Although the total turnover in the secondary market hit the Sh95 billion mark last year up from the Sh34 billion recorded five years ago, it pales when compared to that of other countries.
Nigeria for example traded an equivalent of Sh9 trillion last year, just three years after their ATS went live.
“It is therefore possible for the Kenyan market to trade Sh1 trillion in less than two years and a possible Sh3 trillion by 2013,” Mr Mutuku predicted.