Kenya regulator cuts bond charges, banks still push for bond OTC market

Kenya’s Capital Markets Authority (www.cma.or.ke) has cut the cost of trading bonds from 0.04% per cent (KSh400 for every KSh1 million transacted) to 0.035% (KSh350 for every KSh1 mn) in order to pass on the lower costs due to automated trading on the Nairobi Stock Exchange (www.nse.co.ke), according to a report in Business Daily (www.businessdailyafrica.com).
The NSE can now benefit from the booming market for bonds through levying a transaction fee of KSh35 on every KSh1 mn traded (0.0035%), according to a notice in the Kenya Gazette on 3 Nov. However stockbrokers are losers as their brokerage commission is cut to 0.024% from 0.04%.
New fees on secondary bond fees accrue to the CMA, (0.0015%) the Central Depository and Settlement Corporation (www.cdsckenya.com) (0.0002%) and the CMA Investor Compensation Fund (0.0004%), earn fees on the secondary bond trade. Previously they only earned fees from listings.
Commercial banks are the biggest traders of fixed-income securities at the NSE. However, they still want an over-the-counter (OTC) bond market to operate alongside the exchange. Duncan Kinuthia, a fixed income dealer at the Bank of Africa, was reported as saying: “I am not happy that I will now be paying less, CMA should just have allowed banks to have their OTC market. If they are allowed to by-pass stockbrokers and the NSE and to trade bonds among themselves directly, they would expect to save the commission of 0.04%.”
Government bonds account for more than 90% of daily bond volumes traded at the NSE. Gino Ndung’u, a fixed-income dealer at Dyer and Blair Investment Bank, said the new rules will slash the brokers’ earnings: “We are looking at almost half the revenue gone, meaning we have to work twice as hard as before to earn the same income. There is no reason why the CDSC should earn a fee on bonds that are not under its custody” he added, as the Central Bank of Kenya is the custodian of the Treasury bonds.

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