NSE Receives Approval to Operationalize Hybrid Fixed Income Market

Hybrid market combines both onscreen and over-the-counter trading to revolutionize Kenya’s bond market by enhancing efficiency and vibrancy

The Nairobi Securities Exchange Plc (NSE) is set to operationalize a hybrid fixed income market following approval of amendments to its Fixed Income Trading Rules by the Capital Markets Authority.

The approval will enable the NSE to offer a secondary market that combines both onscreen and Over-the-Counter (OTC) trading of fixed income securities. The operationalization of the hybrid fixed income market is line with NSE’s commitment to revolutionize Kenya’s bond market by enhancing its efficiency and vibrancy.

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The hybrid model will improve pre-trade transparency through the introduction of a Quotations Board, which will provide investors with increased visibility into market quotes, thereby supporting more informed trading. The NSE also plans to launch a real-time daily yield curve that factors in the activities of the Quotations Board as well as the trades executed in the market.

Equally, the decision to combine onscreen and OTC trading will provide market participants with a multifaceted approach for execution of trades on the bond market, further increasing liquidity and depth in the market.

To guarantee settlement of OTC transactions, the hybrid market structure has provided for mandatory reporting of such trades by licensees of the Capital Markets Authority approved as Authorized Security Dealers in accordance to Part IV, Clause 23 (1) of the Capital Markets Act, as well as the licensed trading participants and investment banks.

The mandatory reporting mechanism by licensed entities will play a significant role in the elimination of settlement risks associated with OTC transactions. To this end, the NSE has interfaced with both the Central Bank of Kenya and the Central Depository and Settlement Corporation to ensure efficient settlement of Government and corporate bonds respectively.

This milestone underscores NSE’s continued innovation, aimed at providing infrastructure capabilities that support efficient trading, clearing and settlement of all financial market transactions in Kenya and the region.

“The decision to operationalize a hybrid fixed income market, marks a decisive strategic leap in our efforts to broaden and enhance the efficiency and appeal of Kenya’s bond market to investors,” said Mr Geoffrey Odundo, NSE Chief Executive. “This development is part of our enterprise-wide innovations aimed at aligning our infrastructure capabilities with evolving industry trends.”

Mr Odundo says the hybrid fixed income market represents a forward-looking initiative to create a more dynamic and resilient fixed income market that can better serve the needs of both investors and the broader financial ecosystem.

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