NSE gets approval to operationalize hybrid fixed income market
The Nairobi Securities Exchange (NSE) has received a nod from the Capital Markets Authority (CMA) to operationalise a hybrid fixed income market.
The hybrid market will be characterised by a secondary market that combines both onscreen and over-the-counter (OTC) trading of fixed income securities.
The move follows an approval of amendments to its Fixed Income Trading Rules by the Capital Markets Authority.
In a statement on Wednesday, February 7, 2024, the management said the hybrid model will improve pre-trade transparency through the introduction of a quotations board which will provide investors with increased visibility into market quotes, thereby supporting more informed trading.
“The decision to operationalize a hybrid fixed income market, marks a decisive strategic leap in our efforts to broaden and enhance the efficiency and appeal of Kenya’s bond market to investors. This development is part of our enterprise-wide innovations aimed at aligning our infrastructure capabilities with evolving industry trends,” NSE CEO Geoffrey Odundo said.
“The hybrid fixed income market represents a forward-looking initiative to create a more dynamic and resilient fixed income market that can better serve the needs of both investors and the broader financial ecosystem.”
NSE is also plotting to introduce a real-time daily yield curve that factors in the activities of the quotations board as well as the trades executed in the market.
"Equally, the decision to combine onscreen and OTC trading will provide market participants with a multifaceted approach for execution of trades on the bond market, further increasing liquidity and depth in the market," NSE stated.
"The hybrid market structure has provided for mandatory reporting of such trades by licensees of the Capital Markets Authority approved as Authorized Security Dealers in accordance to Part IV, Clause 23 (1) of the Capital Markets Act, as well as the licensed trading participants and investment banks. The mandatory reporting mechanism by licensed entities will play a significant role in the elimination of settlement risks associated with OTC transactions."
The Nairobi bourse says it has interfaced with both the Central Bank of Kenya and the Central Depository and Settlement Corporation to ensure efficient settlement of government and corporate bonds respectively.