Trading in Treasury Bills now goes full automation

The Central Bank of Kenya (CBK) has fully automated Over-The-Counter (OTC) trading for Treasury Bills, which previously was transacted using physical forms.

This means trading activity on this platform, which was restricted to the 364-day Treasury Bill, will now include buying and selling of all tenors from the 91, 182 and 365 days.

The OTC bond market aims to create a parallel bond trading platform, opening up a window for commercial banks and other players, keen to share a piece of this pie with stockbrokers and investment banks.  "The Bank wishes to inform all investors that it is now possible to buy or sell Treasury Bills of all tenors (i.e. 91, 182 and 364 days) electronically by transmitting trade instructions through use of Worldwide Interbank Financial Telecommunication (SWIFT) messages MT541 and MT543," said Mwenda Marete, Assistant Director- Financial Services Department-CBK in a statement.

Agency arrangement

"All commercial banks can immediately access this trading platform through SWIFT." Investors with no direct access to SWIFT connectivity will be required to get into an agency arrangement with their commercial banks so that they can use the banks' SWIFT networks to transmit instructions for Treasury bills trades.

The setting up of an automated OTC market for Treasury Bills is happening at a time when Stockbrokers and investment Banks have opposed similar parallel bond market, away from the Nairobi Securities Exchange (NSE).

" We are still waiting for a word from the Capital Markets Authority led committee on how they intend to proceed after an initial plan met resistance from stockbrokers and investment banks," said Amish Gupta, director at Standard Investment Bank. While introduction of an Over the Counter (OTC) is expected to make the bond market more vibrant, brokers have expressed fears that this new market could confuse players in the market.

Treasury Bills are not listed securities so the trading volume has been low mainly due to its tedious manual nature.OTC trading of  will be on a delivery versus payment, meaning the settlement will be on the same day.

Company and individual account holders must sign a 'Deed of Indemnity' to CBK allowing their commercial banks to submit SWIFT Message Type  MT 543 on their behalf.

All instructions will be communicated through SWIFT and settled in real time through the existing interface between SWIFT, Real Time Gross Settlement (RTGS) and Central Depository System register.