Consumers are the ultimate winners in price reductions ranging between five and 65 per cent
By James Anyanzwa
Brokers who have been linked to the high cost of debt in the bond market are on notice.
And it is just a matter of time before they are kicked out through a new system of trading that allows commercial banks, insurance companies, and fund managers to trade bonds directly to each other.
The Capital Markets Authority (CMA) yesterday said all the teething problems, including lack of clear-cut mechanisms for reporting transactions, which had previously engulfed the proposed Over-The-Counter (OTC) bond trading method have been resolved.
Acting chief executive Paul Muthaura said the authority is merely awaiting gazettement of regulations for the licensing of the Authorised Securities Dealers (ASDs) before launching the new trading system.
“All the system issues by the Nairobi Securities Exchange (NSE) have been addressed. We are now awaiting the gazettement of the regulations for licensing of authorised securities before we can launch it,” Muthaura told The Standard yesterday.
“We are continuing to engage with the ministry, which has shown great support and now it is just a matter of timelines.”
ASDs licences will enable commercial banks to access the ATS directly from their offices and trade on their own books as part of initiatives of deepening the capital markets.
The latest development creates a fertile ground for firms to raise cheap capital from the debt market to support their growth and expansion.
Firms seeking to raise money in the local debt market by selling bonds have constantly complained of huge cost implications, with others opting for syndicated loans.
Growing appetite
But this could soon end with the adoption of the OTC bond trading method, which allows investors to trade bonds directly with each without going through the brokers.
This will include scraping of investment costs particularly brokerage commissions (including CMA and NSE levies) that are currently being imposed on bond transactions.
Commercial banks account for more than 50 per cent of all transactions in the bonds market, annually translating to huge commissions to brokers who must handle their trades.
Stockbrokers earn commissions of up to 0.04 per cent of the value of every bond transaction, which bankers say is undeserved because they add no expertise to the process.
The growing appetite for debt papers has raised the profile of the fixed income market renewing the old rivalry between banks and brokers.
The market regulator amended the CMA Act and regulations to remove perceived barriers to secondary trading of listed fixed income securities on alternative platforms other than on approved exchange.
Consequently CMA and other stakeholders through the CMA bond steering committee adopted a hybrid model of trading bonds.
The model, which was imported from South Africa that controls 98 per cent of the continent’s bond turnover, gives stockbrokers and bond dealers a choice to either trade bonds at the NSE or away from the exchange through the NSE.
The initiative is part of the market regulator’s attempts to deepen the bond market and boost its liquidity with a view of attracting new investors.
CMA reckons that the key to access capital for long-term investment lies with the development of the secondary market for fixed income securities. But this market has been noted to be illiquid and thus unattractive to investors.
To increase liquidity in secondary trading of both Government and corporate bonds, the CMA is seeking to facilitate the trading of all listed fixed income securities both on and off approved securities exchange.
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