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[2008-09-24] Banks win bonds war against stockbrokers Banking sector regulator Central Bank Kenya has opened a new window in the financial services market that allows commercial banks to trade government bonds outside the Nairobi Stock Exchange (NSE).
This new channel that is provided for under a new regime of regulations hands the bankers a crucial victory in a long-running battle with stockbrokers for control of the bonds market.
Under the new regulations issued on Tuesday, bankers can enter into direct re-purchase agreements for government bonds without necessarily going through the NSE as has been the case in the secondary bonds market.
The law requires that all government bonds be listed and traded at the NSE, but the new regulations allow bankers to enter into repurchase agreements that do not involve the transfer of ownership of the bonds.
The requirement that all treasury bonds must be traded through the NSE was meant to provide a secure trading environment for government securities as well as boost their liquidity in a centralised trading platform.
CBK’s circumvention of the law, while legal, has a huge revenue implication for stockbrokers whose earnings have been recently eroded almost to a trickle as the stock market remains in a prolonged bearish pose.
The new regulations are also set to change the way Treasury instruments are traded, as the bonds market moves away from the stock exchange towards an over the counter (OTC) system that will eliminate the need for broker intermediaries.
Bankers are the biggest buyers of Treasury bonds estimated to be holding in their books about 48.9 per cent of all outstanding Government securities and this move alone could slash by half the brokers’ commission earnings.
