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Fee windfall for stockbrokers, NSE as bond deals hit Sh1.4trn
Stockbrokers normally earn a commission of between 1.5 and 1.8 percent per equities trade, while bond trades attract a commission of 0.03 percent per trade.
Stockbrokers and the Nairobi Securities Exchange (NSE) are set for a windfall in commissions after the value of bonds traded on the bourse jumped to Sh1.39 trillion in the first half of the year compared to Sh781.8 billion in a similar period in 2024.
The higher traded volumes in the period have also meant that the NSE is on course to beat the full year 2024 turnover of Sh1.54 trillion, which was a record for the segment.
Stockbrokers normally charge a commission of 0.03 percent per bond trade and between 1.5 percent and 1.8 percent for equities, with the NSE, the Capital Markets Authority (CMA) and the Central Depository and Settlement Corporation (CDSC) also taking a cut from these commissions.
They will, therefore, look forward to higher earnings from the bonds segment, helping make up for reduced earnings from equities trades, which remain well below the peaks of more than Sh200 billion seen a decade ago.
In 2024, when the bonds turnover more than doubled to Sh1.54 trillion from Sh644 billion a year earlier, the NSE reported an increase in its bond levy income to Sh170 million, from Sh64.4 million in 2023.
This helped it to a six-fold increase in net profit for the year to Sh116.3 million, from Sh18.4 million in 2023, as its total income grew by 25 percent to Sh828.4 million.
The increased vibrancy of the secondary bonds market is partly a result of the increased purchases of government securities by retail investors in the primary market, backed by the introduction of the Central Bank of Kenya’s Dhow CSD digital bonds trading platform that has made it easier to buy government securities.
Retail investors in government debt, who comprise self-help groups, private companies, individuals, Saccos, religious and educational institutions, now hold Sh801.8 billion worth of securities, up from Sh385.8 billion two years ago.
Falling interest rates on new bond issuances on the primary market have also raised the price premium in existing bonds issued in 2023 and 2024 that came with a high coupon or fixed interest rate, enticing their holders to cash in on their paper.
Trading activity has mainly been concentrated on the tax free, 8.5-year infrastructure bond (IFB) issued in February 2024 at a coupon of 18.46 percent, and a trio of 17-year, seven-year and 6.5-year IFBs issued in March, June and November 2023 respectively at interest rates of between 14.4 percent and 17.9 percent.
The 8.5-year paper is trading at the highest premium of any listed bond, touching a price of Sh122.01 per unit of Sh100 (the face value of a bond), translating to a capital gain of 22 percent.
There is an inverse relationship between bond prices and yields, which indicate the rate at which investors are willing to lend to a government at a particular point in time.
When rates on new issuances in the primary market are going down, investors are reluctant to sell existing holdings (which pay more interest) since they would earn less returns from new purchases in the primary market.
At the same time, those looking to invest prefer to buy these existing bonds in the secondary market rather than take up new issuances due to the higher return.
This rise in demand in comparison to supply pushes up the prices that existing bondholders are willing to accept for their securities.
