Kenya’s capital markets regulators are faulting the central bank for excluding non-banks from providing liquidity and setting bond prices under the new guidelines crafted last year to reform the government bond market.
This sets the stage for a battle for control of the lucrative Treasury bond market between commercial banks and Capital Markets Authority-licensed entities such as investment banks.
The Central Bank of Kenya (CBK) has reached out to the International Monetary Fund (IMF) and the World Bank to provide technical support in refining the guidelines and building consensus among stakeholders for implementation of the guidelines.
CBK’s draft over-the-counter guidelines for government securities market aim to shift bond trading from the Nairobi Securities Exchange (NSE) to CBK-owned platforms, largely controlled by foreign entities such as Bloomberg and Refinitiv, and prioritise top commercial banks as market makers.
But the capital markets regulators operating under the auspices of the Capital Markets Round Table (CMRT) say barring non-banking institutions from market-making in government bonds undermines inclusivity, and will allow banks to operate as monopolies , with the risk of assuming cartel-like behaviour in the control of interest rates.
The CMRT is a capital markets industry caucus comprising the CMA, NSE, Kenya Association of Stockbrokers and Investment Banks (Kasib), Fund Managers Association (FMA) and Unclaimed Financial Assets authority (Ufaa).
Others are the Association of Pension Trustees and Administrators of Kenya (Aptak), Central Depository and Settlement Corporation (CDSC), Custodian Association of Kenya and the Real Estate Investment Trusts (REITs) Association of Kenya.
In a letter to CBK Governor Kamau Thugge dated July 30, 2025 the capital markets regulators said market makers in the bond market should either be investment banks or authorised securities dealers (ASDs) licensed by the CMA, and that banks can only qualify as market makers if they do so as authorised securities dealers (ASDs). This means capital markets regulators want banks to be licensed by CMA to play the role of market makers in the government bond market.
“Restricting this function to top banks risks establishing a monopolistic structure, which may reduce the incentives for competitive pricing and undermine the very objective of improved liquidity and reduced trading costs. A diverse and inclusive market-making regime is essential for a dynamic and efficient secondary market,” according to the letter copied to the National Treasury Cabinet Secretary John Mbadi and Principal Secretary Chris Kiptoo
“Additionally, we propose that CMA should consider simplifying the onboarding process of banks for banks that apply for the Authorised Securities Dealers license to avoid administrative hurdles.”
CBK has prioritised top commercial banks to provide liquidity in the government bonds market and quote two way prices (buying and selling prices) of the bonds as part of a broader shift aimed at ensuring the availability of buyers and sellers and enhancing price transparency in transactions.
The reform plan, backed by the IMF and the World Bank, targets heavily capitalised banks regulated by the central bank to serve as market makers by consistently providing price quotations for the buying and selling of treasury bonds.
A market maker or liquidity provider is a company or individual who stands ready to buy and sell securities at quoted prices thereby providing liquidity to the market.
In this case, market makers will be required to quote both a buy and sell price of the government bonds and make a profit on the difference, which is called the bid-ask spread.
The proposed guidelines grant banks minimum two-way quotations at Ksh20 million ($155,038), with incremental lot of Ksh50, 000 ($387). These banks will be under obligation to quote prices between 9.30am and 2.30am.
The capital markets regulators, however argue that going by the data as of June 2025, banks account for 45 percent of domestic holdings of government securities, while non-bank institutions including pension funds, insurance companies ,parastatals and other investors hold a majority share of 55 percent.
So, “in the spirit of inclusivity it might be better to include other market players to be part of the market- making function,” they say.
The CBK guidelines have also proposed the establishment of an electronic trading platform for treasury bonds supported by Refinitiv and Bloomberg.
But capital markets regulators say trading of government securities in Kenya should only occur on platforms that are approved by CMA and introducing unapproved platforms may necessitate the delisting of these securities, a move that would contradict efforts to deepen the bond market through enhanced transparency and regulatory oversight.
“The NSE already offers an integrated platform that supports both exchange-traded and OTC trading. This infrastructure already compliant with CMA’s oversight requirements should be prioritised to avoid duplication of systems and fragmentations of the market,” they say.
“Leveraging NSE’s existing infrastructure would also support market consolidation, cost efficiency, and regulatory coherence.”
According to the capital markets regulators the introduction of the CBK’s DhowCSD has given rise to remarkable growth in retail investor participation in the government bond market and therefore institutionalising bond trading through an overly restrictive OTC framework risks reversing these gains.
“A well- structured OTC market should facilitate wider access (of retail investors), not restrict it,” they say
“The guidelines should, therefore prioritise inclusivity and safeguard the strides made in democratising access to the bond market by ensuring retail investors can continue participating directly or through licensed intermediaries.”
The capital markets regulators say it is their considered opinion that after successful onboarding and investment in treasury bonds at the primary level at CBK, secondary exists should happen through approved licensees of CMA.
“To guarantee exits the Exchange has received expression of interest from potential liquidity providers (Investment banks and Authorised Securities Dealers) who are ready to inject liquidity to guarantee discounting. The issuer and CBK should consider formerly appointing these firms for this purpose,” they say.
According to the capital markets regulators the CBK’s draft OTC guidelines provide a valuable opportunity to enhance the efficiency, and liquidity of the Government of Kenya Securities Market. But the current draft requires refinement to ensure it aligns with principles of fairness, inclusivity, investor protection and regulatory oversight.
“We propose that an industry committee comprising of all stakeholders be constituted to review the document and ensure it achieves its purpose of the successful development of a robust and inclusive OTC market for Kenya,” they say.
CBK said it has invited the IMF and World Bank to offer technical assistance in refining the contentious guidelines for implementation.
“From 20th of April, we are going to have a technical assistance mission from the World Bank and IMF that will be supporting the initiative. We want to make sure we have consultations among the stakeholders then we move forward. They are coming to refine the regulations and help us implement that,” the Bank’s director of Financial Markets David Luusa told The EastAfrican.
“We are working with technical partners to support our effort towards a phased design and implementation of a market making programme for government securities. We are moving in that direction towards making sure we have a robust OTC market for government securities.”
In July 2025, NSE CEO Frank Mwiti told this publication that the bourse is carefully reviewing the proposed guidelines, with hopes that the bond market reforms would be implemented through a consultative process.
“We are reviewing the guidelines to understand them so that it is much easier to really see what the implications are, and that conversation at the capital markets round table,” Mr Mwiti said.
“I think that the best way to develop the market is through consultations.”
CBK’s proposed shift of the government bond trading from NSE to its own-trading platform is expected to directly hurt market intermediaries through lost revenues; stockbrokers typically charge 0.03 percent commission per bond, while the NSE levies 0.1 percent of the bond’s value.
Under the proposed system dealers would confirm trades on Bloomberg’s E-Bond and Refinitiv trading platforms, which are linked to the CBK’s government bond settlement system called DhowCSD.
In an OTC trading model, bond buyers and sellers deal directly with one another, negotiating prices. This contrasts sharply with the current NSE model where brokers facilitate transactions on behalf of clients.