Central Bank of Kenya building in Nairobi. FILE
By CHARLES MWANIKI
The custody and trading of Treasury bonds could
be transferred from the Central Bank of Kenya to the CDSC in proposed
reforms aimed at promoting transparency in the secondary market for
government papers.
The Capital Markets Authority (CMA) has proposed the changes in its 10-year development master plan released Wednesday.
In wide ranging proposals, the capital markets
regulator reveals plans to centralise the custody of securities, which
include government bonds, corporate bonds, stocks and potentially other
instruments that may be introduced in future, such as short-term money
market instruments.
The proposed reforms will see the introduction of
at least five primary dealers, with the establishment of a dedicated
electronic bond trading platform also in the works to enhance the
efficiency of bond trading.
“The primary issuance of bonds by the Government
is a manual and inefficient procedure. This, and liquidity in the
secondary market, could be improved by introducing the concept of
primary dealers — firms that are obligated to make markets in Government
securities and actively take part in primary market auctions,” says the
CMA draft master plan.
To allow for the establishment of primary dealers,
the Treasury would have to make changes to law and regulations to allow
for primary dealers, publish procedures for their operations and
approve the respective firms.
Rules and regulations in place today allow for trading of bonds between Approved Securities Dealers (ASDs).
The publication of the planned reform in issuance
of government bonds comes in the wake of sentiments by CMA calling for
the removal of this role from CBK, in the wake of last year’s scam
involving trading of fake government securities.
CMA chairman Kung’u Gatabaki said last September
that this would remove the risk of conflict of interest faced by CBK in
the dual roles of being in charge of the country’s monetary policy while
at the same time raising funds on behalf of the Treasury that has a
preference for lower interest rates on its debt.
The issuance role is expected to be moved from CBK to the Treasury.
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