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Automated bond trading goes live at Nairobi bourse

By | December 1st 2009

By James Anyanzwa.

The eagerly awaited automation of Treasury bonds trading at the Nairobi Stock Exchange (NSE) has finally been implemented.

The bourse marked the first day of electronic trading in government bonds on Friday last week. The official launch of the facility is, however, expected once the system proves successful.

The development marks a significant step in the efforts by NSE and the Central Bank of Kenya (CBK) towards enhancing liquidity in the debt market.

Bonds worth Sh149 million were transacted through the automated trading system (ATS). These constituted Sh 100 million worth of government bonds and Sh49 million worth of the electronically traded the KenGen Public infrastructure bond (PIBO).

The NSE trading platform is linked directly to CBK’s central depository, which facilitates uploading of government bond securities electronically to the ATS.

The automated bond market will also increase trading efficiency by linking the trading platform to the settlement arm of the NSE.

Liquidity, which was indeed a major a challenge in the manual trading environment, simply refers to the characteristics of the security that allows it to be bought or sold quickly at a known objective market price.

"Automation will thus address this information asymmetry," said Mr Peter Mwangi, NSE chief executive.

"Markets thrive on having readily available and accurate information."

Trading of bonds via the ATS is expected to facilitate accurate determination of supply and demand in the market.

Objective price

"This then facilitates price discovery in the market and gives those who are trading confidence in that they are getting the best available objective price," Mwangi said in a statement last week.

"This transparency then creates a continuous flow of real time data, which is then analysed and feeds back to further inform the market."

The NSE is expected to continue to work with market players towards continual review and improvement of automated trading environment to facilitate secure and efficient trading.

Early last month (November 9) the country launched its first bond through an automated trading environment on the NSE when KenGen listed its Sh25 billion bond.

Proponents of automation argue this type of trading will unlock the much-needed capital to stimulate economic growth.

The ATS links to the central depositories of the Central Bank and the Central Depository and Settlement Corporation.

Manual market

It offers T+3 settlement (payment and transfer of ownership on the third day after trading), compared to T+7 on the manual market, and a much better flow of information.

The KenGen bond is the only corporate bond that has been immobilised and listed on the ATS. Other corporate bonds can join but those already in issue and traded on the manual market would have to ask their bondholders to immobilise their certificates.

The primary bond market has continued to be attractive to investors as they attempted to re-allocate funds to long-term financial instruments owing to persistent volatility in the equity market.

But the bond market has remained relatively underdeveloped compared with other markets in the continent.

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