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“Kenya Moves to Overhaul Government Bond Trading With Proposed Over-the-Counter Market Proposed reforms aim to deepen liquidity and modernize the country’s government debt market, but disagreements over transparency, competition and the role of banks threaten to complicate the transition.” 🚨🚨🚨

October 12, 2026

Kenya Seeks a New Model for Government Securities

Kenya is considering a major change to the way government bonds are traded, with plans to expand over-the-counter trading and allow commercial banks to play a larger role in providing liquidity to the market.

The proposed reforms are intended to make it easier for investors to buy and sell existing government securities, improve price discovery and strengthen the secondary market. However, the initiative has triggered a dispute between commercial banks, stockbrokers, investment banks and the Nairobi Securities Exchange over who should control the country’s multibillion-dollar government bond trading business.

According to reporting by The EastAfrican on September 23, Kenya’s Central Bank has sought technical assistance from the World Bank and the International Monetary Fund to refine proposed rules for an over-the-counter, or OTC, market. The World Bank completed its technical review in August 2026, with recommendations submitted to the National Treasury for consideration and further stakeholder engagement.

The central issue is whether the country should rely more heavily on large commercial banks to quote prices and facilitate transactions, or preserve a broader role for stockbrokers, investment banks and exchange-based trading.

The outcome could affect how efficiently Kenya finances its government spending, how investors trade their holdings and how the country’s financial markets attract domestic and international capital.

What Is an Over-the-Counter Market?

An OTC market allows buyers and sellers to negotiate securities transactions directly through dealers or other financial intermediaries rather than relying exclusively on a centralized stock exchange.

In a government bond market, a commercial bank or authorized dealer may quote a price at which it is willing to buy a bond and another price at which it is willing to sell it. The difference between those prices is known as the bid-ask spread, which compensates the dealer for providing liquidity and taking on certain trading risks.

For investors, a well-functioning OTC market can make it easier to find a counterparty and complete transactions without waiting for another buyer or seller to appear on an exchange.

It can also allow large institutional investors to negotiate transactions suited to their needs, potentially improving execution for substantial bond holdings.

But OTC trading also presents challenges. If prices and completed transactions are not reported consistently, investors may have less visibility into prevailing market values. Smaller investors could also face disadvantages if access to competitive quotes is limited.

The success of the proposed model will therefore depend on its trading rules, reporting requirements, regulatory oversight and the number of institutions permitted to participate.

Why Kenya Wants to Improve Bond-Market Liquidity

Government bonds are an important financing tool for Kenya. The government borrows money from investors and promises to repay the principal at maturity, generally making periodic interest payments along the way for conventional coupon bonds.

The Central Bank of Kenya manages domestic government debt on behalf of the National Treasury, including auctions of Treasury bills and bonds. The central bank also maintains the securities registry and supports development of the secondary market.

The primary market is where the government initially sells securities to investors. The secondary market is where investors subsequently trade those securities among themselves.

A liquid secondary market matters because investors may need to sell bonds before maturity to raise cash, rebalance portfolios or respond to changing interest-rate expectations. If trading is difficult or expensive, investors may demand additional compensation for holding government debt.

More active trading can help establish clearer market prices and improve the usefulness of the government bond yield curve. That curve helps investors evaluate returns across different maturities and can serve as a benchmark for pricing other forms of borrowing.

The proposed OTC reforms are designed to address weaknesses in trading activity and make the market more accessible to large investors seeking to buy or sell existing securities.

Commercial Banks Could Gain a Bigger Role

Under the proposed framework described by The EastAfrican, well-capitalized commercial banks would serve as market makers by regularly providing buy and sell quotations for government bonds.

Market makers are important because they stand ready to transact when other investors want to trade.

Their participation can reduce the difficulty of finding a counterparty, particularly during periods when market activity is low.

The draft framework reportedly contemplates minimum two-way quotations of 20 million Kenyan shillings, with additional trading increments of 50,000 shillings.

Banks may be positioned to perform this function because they have substantial balance sheets, access to funding and established relationships with institutional investors. Those resources can help them hold securities and manage the risks associated with buying and selling bonds.

However, the proposed concentration of market-making responsibilities among large banks is one of the most contentious elements of the plan.

Critics argue that excluding other qualified financial intermediaries could reduce competition and allow a limited number of institutions to exert excessive influence over pricing. They also question whether trading systems should depend on platforms controlled by foreign financial technology providers.

These concerns have turned a technical market-development proposal into a wider debate about competition, regulation and control of Kenya’s financial infrastructure.

Stockbrokers and the Nairobi Securities Exchange Push Back

Stockbrokers and investment banks have opposed elements of the proposed reforms, arguing that the changes could undermine their position in the government securities market.

For decades, the Nairobi Securities Exchange has served as the principal venue for secondary trading in government bonds, with stockbrokers facilitating transactions for investors.

The Kenya Association of Stockbrokers and Investment Banks has argued that the proposed approach could disproportionately favor large commercial banks while weakening the role of existing market participants.

Industry representatives have also raised concerns about transparency and the possibility that restricting market-making to a small group of banks could weaken competition. The Capital Markets Round Table, which brings together market institutions and industry associations, has argued that market-making should remain open to appropriately licensed investment banks and securities dealers as well.

Their preferred approach includes strengthening Kenya’s existing market infrastructure and developing a hybrid model that accommodates both exchange-based and OTC trading.

The disagreement is not simply about which institutions earn fees. It concerns the structure of the market itself: whether greater liquidity is best achieved through a bank-led dealer system, a more inclusive framework or a combination of both.

The Central Bank has said the World Bank’s recommendations will be reviewed by the National Treasury before further engagement with stakeholders. That process leaves room for discussions about the final design and implementation of the reforms.

What the Changes Could Mean for Investors

If implemented effectively, a more active OTC market could give investors additional ways to trade government bonds and manage their portfolios.

Pension funds, insurers, investment funds and other institutional investors often hold government securities as part of their investment strategies. A more liquid market could make it easier for these institutions to adjust their holdings without having to wait for an auction or rely exclusively on exchange-based transactions.

Better trading activity could also help investors compare bond prices and assess the returns available across different maturities.

However, those benefits are not automatic.

An OTC market with limited competition or weak reporting standards could leave some investors facing wider bid-ask spreads and less reliable price information. Investors may also have different levels of access depending on their transaction sizes and relationships with dealers.

For smaller investors, the key questions will be whether they can access competitive pricing, whether transaction costs decline and whether market information becomes more transparent.

A successful reform would need to improve liquidity without making the market less accessible to participants who lack the resources of large commercial banks.

The Implications for Kenya’s Government Borrowing Costs

The reforms could also affect the government’s ability to finance its budget.

Kenya regularly issues Treasury bills and bonds to fund the portion of government expenditure that is not covered by revenue and other financing sources. The National Treasury determines the domestic borrowing requirement, while the Central Bank conducts the issuance process.

A deeper secondary market could make government securities more attractive to investors because they would have greater confidence in their ability to sell holdings when necessary.

That could broaden investor participation and potentially reduce the additional return investors demand for holding securities that are difficult to trade.

However, more liquidity does not guarantee lower borrowing costs. Government yields are also influenced by inflation expectations, monetary policy, public debt levels, fiscal credibility and investor perceptions of risk.

If investors become concerned about the government’s debt trajectory or the reliability of market pricing, yields could remain elevated even if trading becomes more efficient.

The proposed OTC market should therefore be viewed as one part of a broader effort to strengthen Kenya’s domestic capital markets, rather than a standalone solution to its financing challenges.

Transparency Will Be a Critical Test

One of the most important questions is how the proposed market will report prices and transactions.

A centralized exchange can provide a visible record of trades and quoted prices. In a dealer-based market, comparable transparency generally requires clear rules for reporting completed transactions, publishing market information and supervising dealers.

Without those safeguards, investors may struggle to determine whether the prices they receive are competitive.

Regulators will also need to establish standards for market-maker obligations, conflicts of interest, transaction settlement and the treatment of investors during periods of market stress.

The World Bank and IMF involvement reflects an effort to draw on international experience, but Kenya’s market structure and regulatory priorities will determine which model is appropriate.

The final framework will need to balance international best practices with local market development, effective oversight and meaningful participation by domestic financial institutions.

What Happens Next?

The immediate next step is consideration of the technical recommendations by the National Treasury, followed by further engagement among the relevant authorities and market participants.

That process will determine how much of the proposed framework is retained, whether eligibility rules for market makers are revised and what safeguards are introduced to protect transparency and competition.

The debate also raises a broader question for Kenya’s financial sector: how can the country modernize government bond trading while ensuring that the benefits of reform extend beyond a small group of powerful institutions?

The answer will depend on the details of the final rules, not simply the decision to permit more OTC trading.

The Bottom Line

Kenya’s proposed OTC government securities market represents an important attempt to improve bond-market liquidity, modernize trading and strengthen the country’s domestic financing system.

Giving commercial banks a greater role as market makers could make it easier to buy and sell government bonds. But objections from stockbrokers and other market institutions highlight legitimate questions about pricing transparency, competition and access.

The challenge is to create a system that combines the liquidity provided by well-capitalized dealers with effective regulation, transparent reporting and opportunities for a broad range of qualified participants.

For investors, the most important developments to watch are the final market-making rules, the transparency of trading data, the costs of executing transactions and whether secondary-market activity improves.

If Kenya gets those elements right, the reforms could strengthen confidence in its government securities market. If competition and transparency are weakened, the changes could create new problems while attempting to solve existing ones.