Category: Uncategorized

Kenya to issue Sh5bn bond via M-PESA

Kenya to issue Sh5bn bond via M-PESA

NAIROBI, Kenya, Sept 28 – The Treasury has announced the first-ever Government Bond that will be offered exclusively via mobile phone, pointing to the growing relevance of mobile money solutions in the evolving payments space.

The bond will be open from October 16.

The solution, known as M-Akiba, will be delivered in partnership with Safaricom’s M-PESA to continue a push that seeks to deepen access for retail bond trading, which was previously only accessible to commercial banks or traders.

The Treasury has lowered the cost of government bonds from Sh50,000 to Sh3,000 and through this mobile-phone based M-Akiba solution; trades can reach an upper limit of Sh140,000 per day until the bond offering period closes.

“In three weeks over 23 million Kenyans will have the potential to participate in a Sh5 billion Government Infrastructure Bond. This historical development is testament of our commitment to embrace innovation to democratize the uptake of government securities,” National Treasury Cabinet Secretary Henry Rotich said.

“Over the years, 98 percent uptake in government bonds has been by institutional investors, with only two percent going to individual investors- and this has left out many Kenyans from participating in raising funds for nation building,” he added.

To invest in the upcoming Sh5 billion which has been dubbed “Save Money, Make Money, Build Kenya” bond, potential customers will only need to have a valid ID, dial *889# and follow the prompts.

Upon maturity of the bond, the principle amount and coupons (interest from the bond) that will be paid through M-PESA.

Previously, it took an average of two days to buy a government bond in a process that required customers to apply for a Bond CDS Account, take forms to Central Bank of Kenya, and deposit funds with a broker. M-Akiba however makes the process instantaneous.

“This development signals the continuing transformation that mobile money can deliver to boost efficiency in government revenue collection while providing more access for Kenyans. M-Akiba is yet another innovative application that will help more people save and invest, while making it faster for the government to raise funds,” said Stephen Chege, Director – Corporate Affairs, Safaricom.

He noted the need to enhance the savings culture among Kenyans adding that currently, only 11percent of Kenyans save on a regular basis as compared to 22percent in Rwanda and Uganda, while in Qatar this figure stands at 60percent.

View article here

Sands to shift on JSE’s monopoly

Sands to shift on JSE’s monopoly

South Africa’s financial market amounts to one name: the JSE. But very soon the local stock exchange is likely to have competition on its home turf, with a number of licence applications for new exchanges pending.

The country’s central securities depository, Strate – of which the JSE owns almost 45% – is also set to face its first competitor.

Strate provides all the electronic settlement of the equities and bonds bought and sold on the JSE. Though it has publicly shrugged off the arrival of newcomers, those developing the new trading arenas believe the competition that they will bring will be a boon for investors.

The vertical integration of the local market – where the trading of securities, as well as their clearing and settlement, is done for the most part through one dominant channel – is something that needs changing, they argue.

The advent of the Financial Markets Act of 2012, which repealed the old Securities Services Act, paved the way for the introduction of new exchanges.

One of the new hopefuls is A2X. Unlike other newcomers, A2X will go head to head with the JSE, competing on trade in equities, the firm’s chief executive, Kevin Brady, told the Mail & Guardian.

Nevertheless, Brady believes this venture is not just about going after a portion of the JSE’s existing pie. It is also about the growth of the South African market. “We want to provide an alternative platform to buy and sell shares,” said Brady.

The company has applied for a licence to operate an exchange, as required by the Financial Markets Act of 2012, but will be styled on the European multilateral trading facility model.

Secondary market
According to A2X, a multilateral trading facility model is a regulated trading venue that creates a second market for trading securities, with a primary listing on another exchange. These facilities were provided for under changes to European regulations in 2007 with the aim of increasing competition in financial markets.

In the case of A2X, it will not offer primary listings, but will instead provide a secondary market to trade in equities listed on the JSE, with the aim of bringing the costs of trading down. Settlement, however, will still be done through Strate, Brady said. “Although the JSE does have a big stake in [Strate], it is open for business,” he added.

Brady explains how having another exchange in South Africa will work by drawing parallels to the currency market. Much like a central bank issues currency, which can then be bought and sold at a number of venues like banks and foreign exchange companies, A2X will be a place to buy shares that are listed and regulated on the primary exchange. It will feed all the records of its trades into Strate, which will record the ultimate ownership of the shares.

The company aims to reduce transaction costs, specifically trading and clearing costs. According to Brady, A2X expects cost reductions to be in the order of 30% to 50%. It will also offer a T+3 service – meaning trades will be made and settled in the space of three days. Currently the JSE operates on a T+5 model, but is in the process of moving to a T+3 model.

The company is partnering with United Kingdom-based Aquis Exchange, which will be providing its technology. Aquis already operates a pan-European multilateral trading facility.

With no legacy costs and the use of leading technology, Brady believes that A2X will achieve its aim of ultimately saving investors money. International experience has shown that competition reduces direct and indirect costs, increases market efficiencies, deepens liquidity and encourages innovation, he said.

Brady is keenly aware that the barriers to entry in South Africa are high, and acknowledges questions over whether South Africa is large enough to sustain a competitor to the JSE. But given the JSE’s well-publicised profitability, he believes this is a sign that there is ample room for new entrants. “That is [a] big profitable pool,” he said.

The company aims to “go live” by mid-2016, provided that variables, such as its licence being granted, do not slow the process down. However, Brady said the Financial Services Board has been responsive to A2X’s application and it has had constructive interactions with the regulator.

Guard against market fragmentation
The realities of how a new exchange will get off the ground remain to be seen, however. Although competition would help drive down costs and benefit consumers, the Financial Services Board has to guard against market fragmentation, said Solly Keetse, head of the department for market abuse at the regulator.

In making decisions, the board will be guided by the objectives of the Act, he said, including ensuring a stable financial markets environment, reducing systemic risk and promoting the international competitiveness of South African financial markets.

The United States, which has more than a dozen exchanges, has a market large enough to support them, he pointed out. Australia, like South Africa, was in the past dominated by a single stock exchange, the ASX. The arrival of alternative exchange Chi-X in 2011 shook things up: it has grown its market share to between 15% and 20% in value traded on most trading days, according to a recent media release.

Not all of the new exchanges will take on the JSE directly, however. Some of the applicants, such as ZAR?X, will initially be focused on creating a platform to trade restricted shares, formerly bought and sold over the counter, particularly black economic empowerment shares and those of agriculture co-operatives.

Etienne Nel, the founder of ZAR?X, said that the Financial Services Board’s efforts in 2014 to regulate over-the-counter trading partly informed the decision to start ZAR?X. He estimated the existing value of the over-the-counter market to be between R30-billion and R35-billion.

According to Nel, the arrival of new trading platforms will, “if anything, strengthen capital markets in South Africa” rather than fragment them. “Currently, we have a large pool of investors’ capital chasing a small pool of investment opportunities on one exchange,” Nel said.

Like the JSE, Strate has had a monopoly on settlement as South Africa’s sole central securities depository. This looks set to change after Granite CSD was recently granted a licence by the Financial Services Board.

Granite, which is expected to launch in the first quarter of 2016, will focus on the bond market, with money market and other instruments to be introduced in the future. “It will offer choice to the investor and issuer,” said Leon Rossouw, Granite’s chief executive.

The company also aims to address some “operational inefficiency” that currently exists in the system, said Rossouw, by offering more frequent settlement runs during the day, running as often as hourly.

A greater say
Granite is targeting a “user-owned, user-governed” model, inviting market participants such as asset managers, international banks and other financial market institutions to invest in the central securities depository.

This will allow the players who generate the bulk of revenue for this institution to have a greater say in its strategy and governance, Rossouw said. He added that it is important for market infrastructure to be owned by the market. Strate is currently owned by the JSE, which holds just less than 45%, and by the four major banks: Absa, FirstRand, Nedbank and Standard Bank.

Granite will also be looking to the rest of the continent, beginning with the Southern African Development Community countries, to help provide much-needed support for trading, Rossouw said.

View article here

SA’s settlement market to be disrupted

SA’s settlement market to be disrupted

South Africa’s settlement market is set to be disrupted following the issue of a Financial Market Infrastructure licence to Granite.

The licence issued by the Financial Services Board (FSB) is the first of its kind under the Financial Markets Act of 2012 and will provide competition to Strate Central Securities Depository (CSD).

Strate currently is the only operator in South Africa to provide electronic settlement of equities and bonds transactions concluded on the Johannesburg Stock Exchange (JSE). It also settles transactions in money market securities.

Granite CSD, which launched Thursday, will initially settle debt securities with a focus on the bond market.

It plans to commence operations in early 2016, and will move into the money market later down the line.

“In the very near to medium future we will look to expand our product range to collateral management and equities,” said Leon Rossouw, founder and CEO of Granite.

The CEO also expressed the company’s interest in expanding further into other African countries.

The securities settlement service in a statement said that it saw the need to introduce competition to offer the debt market “a streamlined efficient and cost effective service with shorter settlement intervals and a stronger focus on innovation and settlement risk reduction”.

Rossouw told CNBC Africa, “we are of the opinion that if you introduce competition to the market, you clearly are keeping the opposition on their toes.”

The alternative securities settlement service comes at a time when at least three companies have applied to the FSB for stock exchange licences to compete with Africa’s largest bourse – the JSE.

The three are: 4 Africa Exchange (4AX), formed by a consortium of stakeholders including Bravura Capital and agricultural business NWK; ZAR X established by Etienne Nel, who headed Equity Express, which provided trading technology for over the counter trading; and A2X headed by Kevin Brady, a former stockbroker.

View the original article here.

Elionn Digital