The Central Bank of Kenya (CBK) is standing firm on its decision not to integrate a treasury bond trading platform owned by commercial banks into its settlement system, citing risks to interest rate predictability.
The standoff follows a September 17 meeting where East African Bond Exchange (EABX) Group Plc executives asked National Treasury Cabinet Secretary John Mbadi to intervene.
EABX argued that linking its system to CBK’s bond trading portal would align with Kenya’s debt management priorities, deepen the bond market, and lower borrowing costs.“EABX Group Plc is seeking facilitation by the National Treasury and CBK to access the Dhow Central Securities Depository—unlocking new investment avenues, enhancing liquidity, and cutting borrowing costs, key to a stronger, more efficient debt market,” the company posted on X after the meeting.“We are encouraged by the ongoing dialogue between the Treasury, CMA (Capital Markets Authority), EABX Group, and other key stakeholders. We remain committed to enhancing capital market reforms in line with national aspirations.”A CBK source, however, said allowing two parallel government bond platforms would distort the yield curve, a key indicator of future interest rate expectations.“People can have a courtesy visit to the CS. I don’t know what they discussed, but our position has not changed. We are not connecting them,” the source told The EastAfrican. “From the last time we spoke, our position remains unchanged.”Treasury bonds are lucrative debt instruments through which the government borrows from the domestic market to finance persistent budget deficits, with CBK acting as the fiscal agent.
In February, the same source said the regulator was instead working to introduce a market-making framework to improve liquidity and transparency.“We’ve communicated our position to EABX. The entire area of over-the-counter trading is being addressed jointly by CMA, CBK, and the National Treasury. It’s likely to move in the direction of market makers, which is the approach many countries take to ensure transparency and reduce complexity,” the source said.
Backed by the Kenya Bankers Association (KBA) and supported by FSD Africa, the platform is 30 percent owned by Kenyan banks through KBA.
The new platform is designed to run parallel to the Nairobi Securities Exchange (NSE). But to trade in government bonds, it must connect to CBK’s online bond trading system, DhowCSD, launched in August 2023 as the official registry. CBK has rejected that access, effectively barring EABX from trading in government bonds.
CBK has also proposed regulations to shift treasury bond trading from the NSE to its own platform, giving selected banks priority as market makers. Market makers are individuals or firms that continuously buy and sell securities to provide liquidity and stabilise pricing.
The proposed changes are expected to hit market intermediaries through lost revenues. Brokers currently charge a 0.03 percent commission per bond trade, while the NSE collects 0.1 percent of the bond’s value.
CBK argues the reforms will improve price discovery, market liquidity, and transparency in the government securities market.
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