Capital Markets Authority's initiative to boost over-the-counter trading

The Capital Markets Authority (CMA) is revitalizing the Over-the-Counter (OTC) markets and trade reporting to reduce inefficiencies.

According to the regulator, this will also increase market debt and liquidity of government bonds through efficient pricing.

CMA CEO Wycliffe Shamiah said they are providing an opportunity for the buyers and sellers to engage directly and negotiate prices through the ease of licensing processes.

“The process of licensing can be very involving and so, we are making it easier so that they can take up that licence,” Shamiah said in Nairobi Thursday.

Without adequate dealers, off-market bond deals have been forced to be cleared through intermediaries in the organised Nairobi Securities Exchange (NSE).

“In capital markets globally, particularly the equities markets, we saw the strongest performance in the quarter in the last three years,” Shamiah said.

“There is hope in terms of pricing of fixed income securities especially the bonds in the secondary market because of the hope that actions taken by Central banks and governments will see reduced interest rates."

He expressed optimism that the combination of higher yields and reduced Central Bank money tightening will contribute to the restoration of more market conditions this year.

An OTC market is where traders interact without going through the formal securities exchange.

It involves bilateral negotiations and trading through dealer networks.

Dedicated OTC markets do not have physical location associated but all trades occur electronically and directly between two parties in a decentralized market.

Some of the benefits of OTC are that it enables small businesses to fundraise without the necessity of being listed on a stock exchange and reduction of financial and administrative costs for businesses.

Some of the risks, however, include low liquidity since securities bought and sold on OTC markets are not frequently traded.