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Kenya: Trading of Bonds Set to Change
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The Nation (Nairobi)
22 July 2008
Posted to the web 22 July 2008
Justus Ondari
Nairobi
Selling and buying of debt securities is set to undergo a major makeover if a proposal by the two capital market regulators goes through.
The Central Bank of Kenya, the banking industry regulator and government borrowing agent, and the Capital Markets Authority, are proposing that trading of both government and corporate bonds take place outside the Nairobi Stock Exchange in an over-the-counter system.
This, they say, will speed up the issuance of new bonds and increase trading at the secondary market while making it cheaper for companies seeking long term borrowing from the public.
"The Authority looks forward to working with all players in further developing the bond market," Stella Kilonzo, CMA chief executive, said Monday.
Top of the list is the reorganisation of the current infrastructure "with a view to overhauling it in line with current international standards."
Currently, CBK carries out trading of government credit papers in the primary market while secondary trading is done at the NSE.
Corporate organisations seeking to borrow from the public appoint an investment bank as their placement agent who in turn sells to the investors.
"We shall also seek to answer the question of whether we need to begin trading bonds on an over-the-counter platform," Ms Kilonzo said.
She was speaking during the launch of trading of the Sh2 billion second tranche of Barclays Bank of Kenya's Sh5 billion corporate bond at the NSE. According to NSE first vice chairman Bob Karina, CBK is already a step ahead in this, having organised a forum with the market players on how to carry out the changeover.
"We are looking into the introduction of a hybrid OTC system, where debt securities can be traded off the exchange," Mr Karina added. The stock market will, however, retain some of its current functions which include reporting of the transaction activities.
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"This will enhance price discovery through dissemination of information from a central location by a reputable source," said Mr Karina, who is also the Faida Investment Bank managing director. The BBK issue, which opened on June 11 and closed on July 9, was oversubscribed by 27 per cent.
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