Standard agreements could unlock Dhow CSD to African, Global markets

Written by Oral East Africa

Kenya new bond trading system has excited the market with the new feature that allows transfer of the assets to buyers, but traders say they want regulators to shift to standard global contracts to attract foreign buyers to this market.

Kenyan authorities recognize Master Repurchase Agreement (MRA) and International Swaps and Derivatives Association (ISDA) but market players want the Central Bank of Kenya (CBK) to pronounce itself on Global Master Repurchase Agreement (GMRA), a global contract preferred by foreign investor due to simplicity of executions and enforceability.

Absa Bank Kenya senior legal counsel Rhee Molefe said Uganda which recognized the enforceability of ISDA and GMRA contracts has seen a rise in repo deals as international markets gain confidence to play in the market.

He was speaking at the 2025 Macro Economic Outlook, risk management and structured investments solutions forum where Absa Bank gave customers, bank peers and analysts a masterclass on alternative finance, equity options and risk management tools to navigate the volatility in the market.

Absa Bank said the forum is part of its strategy to empower customers in line with their Corporate and Investment Banking strategy of investing in people to grow Africa one story at a time.

Director, Head of Trading at Absa Bank Kenya PLC Wolfgang Omondi follows proceedings during the Absa Bank Kenya 2025 economic forum

Kenya is among the leading African markets that are investing in upgrading market infrastructure set to attract capital as the global markets recover.

legwork

In September 2023, Kenya launched the Dhow CSD, a systemically important infrastructure that will improve registry, custodial and settlement services for both primary and secondary securities market operations.

The Dhow CSD is expected to transform Kenya’s financial markets through enhanced operational efficiency and expansion of digital access, market deepening for broader financial inclusion’.

Absa Bank Kenya senior legal counsel Rhee Molefe

“The Central Bank of Kenya has done the legwork, now we need to go out and tell the world about it, and the world wants to know about the enforceability of the arrangements and that is where standard contracts will be key,” Mr Molefe said.

masterclass

Absa Bank took market analysts, banking peers, importers and exporters through informative sessions on tools available to manage risk, and engineer new areas of growth, including total return swaps, repos, and buy and sell backs as well as derivative instruments and strategies for effective currency hedges.

To execute these deals banks and their customers will need contracts that ensure efficient negotiation and execution and protect their investments.

Initially when Kenya used to operate on manual bids that were not transferable, which meant ownership was not recognized in case of litigation implying that buyers should have executed a lien, which require additional agreements that may have been overlooked.

manual bids

The use of manual bids in the previous system also limited the ability of the public to buy treasury bills and bonds at anytime and anywhere in the world without the need for intermediaries.

Dhow CSD will also improve the functioning of the interbank market by facilitating collateralized lending amongst commercial banks and further reduce segmentation in the interbank market.

Although Dhow CSD has also eliminated the previously lengthy process of physically visiting the CBK to open securities trading accounts and has allowed retail investors to conveniently buy and sell government securities from the comfort of their homes and offices, contracting has not yet caught up.

Improvements in market infrastructure enhance market efficiency and liquidity over time ensuring capital flows more freely and is attracted to such economies as domestic financial conditions become easier.

The new market solution has set Kenya apart this year making the market attractive to foreign investors as they shop for growth prospects on improving global economy. It has already reinvigorated trading in the Kenyan market where thousands of retail investors have registered to trade on the digital platform.