CBK lowers interbank forex trading limit to $100,000

The Central Bank of Kenya (CBK) has lowered the minimum amount that banks can trade in the formal interbank forex market to $100,000 (Sh15.7 million) from $250,000 (Sh39.3 million) following the launch of an electronic trading platform that is expected to improve supply and price discovery in the forex market.

A CBK circular on the new platform, which is known as Electronic Matching Systems (EMS), has also abolished the spread of 20 cents between bids and asks, effectively freeing market participants to negotiate rates depending on supply and demand.

The minimum trade limit on the interbank market had been put at $500,000 (Sh78.7 million) in a 2015 CBK circular to banks, which also introduced the 20 cent spread.

The trading limit was subsequently halved in an August 2023 circular, which also set the stage for the introduction of the electronic platform.

“Minimum tradable amount in EMS will be $100,000 with additional lot sizes of $50,000. System Participants may transact amounts outside the minimum tradable amount via Request for Quote [a direct trading line],” say the CBK rules.

“Firm, tradeable prices will now be available via the EMS. Market participants should buy and sell foreign exchange with their clients and among themselves at freely negotiated rates and should adjust their quotes as necessary for prudent management of their forex risk within prudential limits.”

The introduction of the electronic platform was one of the key reforms the CBK identified last year in response to the near collapse of the interbank forex market, whose problems caused a dollar supply hitch that resulted in the emergence of a parallel foreign exchange market rate.

Banks had taken issue with tough policing by the regulator over trades that fell outside allowable spread limits and the official exchange rate.

All the licensed commercial banks in Kenya have been admitted as system participants in the EMS, which is also open to non-banking players on application to the CBK.

Participants will be utilising the EMS to place their purchase or sell orders, but the quotes will remain anonymous until the trades are matched for settlement.

In order to guarantee liquidity and fair prices in the market, the CBK has earmarked the 10 leading commercial banks in terms of foreign exchange trading to act as market makers for the platform.

“The market makers will be expected to continuously provide two-way quotes in the EMS, good for the minimum tradable amount. All other banks can provide two-way quotes in the EMS, good for the minimum tradable amount, at their discretion,” said the CBK.

The earmarked lenders include Absa Bank Kenya, Citibank Kenya, DTB, Equity Group and I&M Bank. Others are KCB, NCBA, Stanbic Bank Kenya, Standard Chartered Bank Kenya and Co-operative Bank of Kenya.

Source: Business Daily

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