The Nairobi Securities Exchange (NSE) has announced its receipt of approval to implement a hybrid fixed-income market, combining both onscreen and Over-the-Counter (OTC) trading, as per the amendments to its Fixed Income Trading Rules approved by the Capital Markets Authority.
This move, as highlighted by the NSE, underscores its commitment to revolutionizing Kenya's bond market by enhancing its efficiency and vibrancy.
The hybrid model is anticipated to bring about significant improvements in pre-trade transparency through the introduction of a Quotations Board, providing investors with enhanced visibility into market quotes. This, in turn, will facilitate more informed trading decisions.
Additionally, the NSE intends to launch a real-time daily yield curve that takes into account the activities of the Quotations Board and the trades executed in the market.
By combining onscreen and OTC trading, the NSE aims to provide market participants with a comprehensive approach to executing trades on the bond market, thereby boosting liquidity and market depth.
To ensure the settlement of OTC transactions, the hybrid market structure incorporates mandatory reporting by licensed entities, including Authorized Security Dealers approved by the Capital Markets Authority, licensed trading participants, and investment banks.
This reporting mechanism is expected to play a crucial role in mitigating settlement risks associated with OTC transactions.
The NSE has collaborated closely with the Central Bank of Kenya and the Central Depository and Settlement Corporation to ensure efficient settlement of Government and corporate bonds, respectively, underscoring its commitment to facilitating seamless market operations.
Geoffrey Odundo, Chief Executive of the NSE, emphasized the significance of this development, stating, "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."
He further added, "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."
This milestone reflects the NSE's ongoing commitment to innovation, aimed at providing infrastructure capabilities that support efficient trading, clearing, and settlement of all financial market transactions in Kenya and the region.