NSE to launch hybrid fixed income market

The Nairobi Securities Exchange Plc (NSE) is poised to usher in a new era in Kenya’s financial landscape with the operationalization of a hybrid fixed-income market.

This initiative comes on following the approval of amendments to the NSE’s Fixed Income Trading Rules by the Capital Markets Authority (CMA), signaling a milestone in the evolution of the country’s bond market.

CMA’s approval paves the way for the NSE to introduce a secondary market that combines both onscreen and Over-the-Counter (OTC) trading of fixed-income securities.

This hybrid model reflects the NSE’s commitment to revolutionizing Kenya’s bond market by enhancing its efficiency and vibrancy, ultimately creating a more dynamic and resilient financial ecosystem.

Central to the hybrid fixed-income market is the introduction of a Quotations Board, which will enhance pre-trade transparency by providing investors with increased visibility into market quotes.

This will empower investors to make more informed trading decisions, thereby bolstering market liquidity and depth.

Additionally, the NSE plans to launch a real-time daily yield curve, incorporating data from the Quotations Board and market trades, further enriching market insights and facilitating efficient price discovery.

By combining onscreen and OTC trading, the hybrid market structure offers market participants a multifaceted approach to trade execution, fostering greater liquidity and depth in the bond market.

To ensure the settlement of OTC transactions, the hybrid market has instituted a mandatory reporting mechanism for licensed entities, including Authorized Security Dealers approved by the CMA and licensed trading participants.

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OTC transaction risks

This mechanism aims to mitigate settlement risks associated with OTC transactions, enhancing market integrity and investor confidence.

In preparation for the operationalization of the hybrid fixed-income market, the NSE has collaborated closely with regulatory bodies, including the Central Bank of Kenya and the Central Depository and Settlement Corporation, to ensure efficient settlement of government and corporate bonds.

This collaboration is set to see the NSE provide robust infrastructure capabilities that support efficient trading, clearing, and settlement of financial market transactions in Kenya and the region.

Dr. Geoffrey Odundo, NSE Chief Executive, expressed confidence in the potential of the hybrid fixed-income market to broaden and enhance the efficiency and appeal of Kenya’s bond market to investors.

He adds that the launch of the hybrid market aligns with the NSE’s strategic vision to innovate and evolve in response to industry trends, ultimately creating a more dynamic and resilient financial marketplace that serves the needs of investors and stakeholders alike.

As Kenya’s bond market shifts towards greater transparency, efficiency, and accessibility, the introduction of the hybrid fixed-income market marks a step forward in positioning the country as a hub for financial innovation and excellence in the region.

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