Proposed law will boost T-Bills, Bonds trading

By Jackson Okoth

A wider segment of investors will soon be able to trade in Government paper. This is thanks to amendments to the Central Depositories Act allowing these investors to clear and settle Treasury Bills and Treasury Bonds.

“This is welcome news for us in the capital markets. For a long time, trading in Government securities has been a closed shop, dominated by a few players. We now expect more foreign and retail investors to come into this market when the new system is up and running,” Amish Gupta, associate director at Standard Investment Bank told The Standard.

In the 2012/13-Budget read last week, Finance Minister Robinson Githae made the proposal to amend the Central Depository & Settlement Corporation (CDSC) Act, to open up Government paper market to more players. Details of these amendments to the CDSC Act are contained in the Finance Bill, 2012/13, set to be discussed and approved by Parliament.

“In order to facilitate the setting up and making operational a single CSD, I propose to amend the Central Depositories Act to include Government securities as part of eligible security for purposes of clearing and settlement,” said Githae.

At the moment, there are two different securities settlement infrastructures. One is housed at the CDSC, and the other at the Central Bank of Kenya. However, international best practice points to a single and efficient securities settlement infrastructure for both fixed income and equity securities.

“We anticipate that with a more vibrant secondary trading market in Government securities, the State will be more successful in raising funds for its domestic debt programs. We also expect increase liquidity in the Government debt market, as well as more transparent pricing of these instruments,” said Gupta.

Treasury Bills are short-term Government securities while Treasury Bonds are medium to long term. Both are sold by the Central Bank of Kenya on behalf of Treasury.

The debt market is a financial shopping centre where participants buy and sell debt securities. It is composed of Government and corporate bonds, all of which currently trade at the Nairobi Securities Exchange (NSE).

Treasury securities are debt financing instruments issued by the Government of Kenya through the Central Bank of Kenya as envisaged in section 4(A) (1) of the CBK Act Cap 491, which is: The Bank shall act as advisor to and as fiscal agent of the Government of Kenya.

Further, pursuant to the Internal Loans Act (CAP 420), the Central Bank of Kenya has been appointed as an Agent of the Government with respect to issuance of Government securities, maintenance of the domestic debt register, and redemption and payment of interest on the securities.

The creation of a single clearing and settlement infrastructure for Government paper is happening as the World Bank and market regulators are working on a parallel project to enable investors purchase T-Bills or Government bonds through their mobile phones.

This initiative will be riding on the M-Pesa mobile cash platform to execute the transactions. Investors in the Government paper market will only need their mobile phones and an electronic account at the CBK, to transact business.

The new scheme, known as Treasury Mobile Direct, aims at encouraging Kenyans to save, and increase retail participation in the bond market, currently less than three per cent.