Settlement services - Kenya

Pre-matching Service

Pre-matching is performed between local custodians and brokers and is subject to counterparty availability.

On T+1, the custodian confirms trade details with the broker via e-Mail. Any mismatches are communicated back to clients via MT548.

PREA/NEWM messages are not applicable in the Kenyan market.

Domestic allegement matching service

Where no pre-matching has been done in the market, Clearstream accepts allegements via its custodian from domestic market counterparties. It will then use these allegement messages to search for the best matching client instruction.

If no matching client instruction is found, the allegement is reported to the client provided that its Clearstream account number is stated in the allegement message.

Pre-funding and cash payments

The Kenyan securities market operates strictly as a pre-funded market. This means that clients’ trades need to be provisioned on SD-1. Transactions in Government debt securities settle against Kenyan Shilling (KES) and are expected to settle without fail.

Clients are required to provision their KES account through Clearstream’s KES cash correspondent bank, Standard Chartered Bank Kenya Limited, or make FX arrangements via Clearstream’s Treasury Desk. In all cases, funds must be freely available on the client’s KES account with Clearstream to enable provisioning of the trade on SD-1.

Clients are strongly recommended to provision their cash account before the deadlines set for securities instructions.

Recycling of Pending Instructions

Clearstream settlement instructions that are still unmatched at the end of the 30th business day after the first attempted settlement date will be automatically cancelled by the Depository.

Clients need to be aware that transactions in Government debt securities are expected to settle without fail.

Bilateral Cancellation

Cancellation instructions (MT540-543) are executed upon receipt, unless the trade has already been processed in the market.

Partial Settlement

Partial settlements are not allowed in the Kenyan market.

Cash Trade Tolerance

For settlement amount discrepancies between the client and their domestic counterparty,  the tolerance level will be equivalent to KES 3750. In those cases where the difference in the settlement amount does not exceed the stated tolerance, the amount specified by the domestic counterparty’s instruction will prevail.

Back-to-Back processing (Transaction Linking)

Not applicable in the Kenyan market.

Penalties and Buy-ins

Cash Penalties: There are no specific penalty fees for failed settlements in government securities trading. Penalties may apply if there is a delay due to a difference in settlement amounts.

Buy-in/Sell-out: Not applicable for government securities in this market.

Bridge Settlement

Bridge settlement in Kenyan securities as well as in KES is not possible.

Internal Settlement

Internal settlement of Kenyan Government securities is possible against any Clearstream-eligible currency.

New Issues Settlement – Primary Market

Government Bond Auction Process

Primary auctions for government securities are conducted on a monthly basis on Wednesdays by the Central Bank of Kenya.

The purpose and details of each auction are published on the Central Bank of Kenya’s website portal [https://www.centralbank.go.ke]. In addition, the Central Bank of Kenya acts as an agent of the National Treasury being responsible for the preparation of prospectuses for Government securities and ensuring their listing at the local Nairobi Securities Exchange (NSE).

Auction bids for Government securities can be submitted by investors as:

1. Competitive Bids

A competitive bid is an offer to purchase a certain amount of a security at a specific price or yield that the bidder wishes to pay. If the yield the investor asks for is too high compared to the auction’s results, their bid is rejected.

Competitive bids are generally submitted by large institutional investors, such as banks, pension funds and insurance companies.

The minimum bid amount is KES 2 000 000 (Two million). In case a client submits a bid below KES 2 000 000, the Central Bank of Kenya will reject the bid.

2. Non-competitive Bids

A non-competitive bid is an offer to purchase a certain amount of a security at whatever yield is determined by the auction. The bidder agrees to accept the weighted average interest rate to a certain maximum amount.

Non-competitive bids are designed for retail investors.

The aggregated maximum bid amount for Clearstream clients is KES 50 000 000 (Fifty million). This is the maximum threshold allocated to Clearstream as per prevailing Auction Rules for the submission of non-competitive bids.

Auctions are conducted based on the multiple price method, which means that competitive bids are ranked according to yield bid, from lowest to highest. As next, the weighted average interest rate of the competitive bids is computed. In turn, the Auction Management Committee will set the cut-off rate and amount to be accepted.

The allotment of bids is done as follows:

• Competitive bids up to the cut-off rate are allocated at the bid rate.
• Competitive bids above the cut-off rate are rejected.
• Non-Competitive bids will be allocated at the weighted average interest rate and are accepted in full.
• Clients should be aware that bids may be pro-rated at the discretion of the Auction Management Committee.
• The results of the auction will be published on the Central Bank of Kenya website portal.

Auctions: Bidding and Settlement Process

This guide outlines the timeline and procedures for participating in Kenyan debt securities auctions via Clearstream. Please review the key deadlines and corresponding actions required to ensure successful participation.

Clients are strongly encouraged to submit their bids as early as possible, and by no later than the deadline stipulated below.

Auction Timeline and Key Actions (T-Bills and Government Bonds, including Infrastructure Bonds).

Mandatory Information for Bid Submission (Swift MT599/Xact)

Please ensure your MT599 bid instruction includes the following details in the specified format:

:20: KENYA Auction Bid
Attention PSN - Settlement nonLMP

Please take this authenticated message as our official request for you to submit a bid on our behalf for the following Kenyan government bond auction, taking place on dd mm yyyy:

1. ISIN or issue number
2. Face value of bid
3. Tenor
4. Bid rate
5. Clearstream safekeeping account number in Kenya: 136331000001
6. Client account number [Clearstream 5-digit account number] : xxxxx
7. Client to confirm how and by when funding in KES for the bid will be made.

“We acknowledge and agree that the submission of a bid is no guarantee that the securities so bid for will actually be allocated by the Central Bank of Kenya.

The allocation of securities is at the discretion of the Central Bank and neither Clearstream nor its local custodian has any control or responsibility for such allocation.”

Important Notes:

• Funding: Clients must ensure that the full KES settlement amount for successful bids is credited to Clearstream’s KES cash account and freely available on the client's account before the 13:30 CET deadline on Friday (Auction Day + 2). This can be done via direct funding or by booking an FX deal.
• Disclaimer: The submission of a bid does not guarantee an allocation of securities by the Central Bank of Kenya. The allocation is at the sole discretion of the Central Bank, and neither Clearstream nor its local custodian holds any responsibility for the allocation results. Client acknowledges and agrees that the submission of a Bid is no guarantee that the Securities so bid for will actually be allocated by the Central Bank of Kenya. The allocation of Securities is at the discretion of the Central Bank of Kenya, and neither the Custodian nor any of its Affiliates has any control over, or responsibility for, such allocation.

Secondary Market

Government bonds are listed and traded on the Nairobi Securities Exchange. Settlement cycle for secondary trading of government securities agreed between counterparties can settle on T+0, T+1, T+2 or T+3.

T-Bills are traded Over-the-Counter (OTC).

Clients must ensure that their RVP/ MT541 instructions are fully provisioned (pre-funded) on SD-1, i.e. the KES settlement amount is credited to Clearstream’s KES cash account either by direct funding or by booking a FX deal. Funds must be freely available on the client’s account with Clearstream to enable provisioning of the trade before the deadline.

Secondary market trades are not allowed to fail once committed to the market in the ATS (Automated Trading System) and from that point those trades are considered irrevocable and cannot be cancelled.

Portfolio Transfers

Free of Payment (FOP) instructions corresponding to portfolio transfers (No Change in Beneficial Ownership) are allowed but can take between 2 to 4 weeks to be completed. The process is manual and lengthy, requiring physical letters and approvals from the Nairobi Securities Exchange (NSE) and Capital Markets Authority (CMA).

Client instructions for FOP will require:

Upon receipt of a matching M540/542, the custodian will initiate the transfer request to the Nairobi Securities Exchange (NSE) and Capital Markets Authority (CMA).

Physical letters addressed to the NSE and CMA will be delivered attaching supporting documentation:

• Client’s instructions
• Copy of DhowCSD holding statements

NSE will review the transfer request, approve and forward the request to CMA with all documentation.
CMA will further review the request, approve and send a physical letter to NSE confirming the approval.
NSE will send an approval confirmation (Letter) to Clearstream, the Custodian and the Central Bank of Kenya.

The Custodian will execute the transfer in the DhowCSD and Client will receive the settlement confirmations.

Where the transfer is to another local custodian, the physical transfer request will be delivered to the new custodian, who will then submit the documentation to the NSE and CMA.

Timeline

The timeline is open as the portfolio transfer can take from 2 to 4 weeks to be completed by the Custodian.