Standard story from Saturday..

See~~>

Is this the end of the road for the case or not ?

Previous article had hinted so.

Regarding Treasury vs CBK..

Treasury should obviously be incharge of creation and issuance of these bonds. Only problem is by having transferred the role to CBK, it hints that Treasury MAY be more porous than CBK. Just MAY·BE..




#2Cents

[quote=Scubidu]The capital markets regulator on Monday demanded that the role of creating and primary issuance of bonds be transferred from the CBK to the Treasury in the wake of the scam involving the sale of fake government securities.

Capital Markets Authority (CMA) chairman Kung’u Gatabaki said such a move would also remove the risk of conflict of interest that the CBK currently faces being in charge of the country’s monetary policy while at the same time raising funds on behalf of the Treasury that has a preference for lower interest rates on its debt.

“The CBK should not have an interest in the outcome of the bond auctions,” Mr Gatabaki said, adding that the Treasury was better suited to handle the bonds and keep custody of government securities through its Debt Department.

“The Treasury should take charge of the whole process of creating and issuing government securities.”

Read more:

http://www.businessdaily...0/-/its3uv/-/index.html[/quote]


where in the world does this happen?

isnt this a conflict of interest?

[quote=Scubidu]The capital markets regulator on Monday demanded that the role of creating and primary issuance of bonds be transferred from the CBK to the Treasury in the wake of the scam involving the sale of fake government securities.

Capital Markets Authority (CMA) chairman Kung’u Gatabaki said such a move would also remove the risk of conflict of interest that the CBK currently faces being in charge of the country’s monetary policy while at the same time raising funds on behalf of the Treasury that has a preference for lower interest rates on its debt.

“The CBK should not have an interest in the outcome of the bond auctions,” Mr Gatabaki said, adding that the Treasury was better suited to handle the bonds and keep custody of government securities through its Debt Department.

“The Treasury should take charge of the whole process of creating and issuing government securities.”

Read more:

http://www.businessdaily...0/-/its3uv/-/index.html[/quote]


where in the world does this happen?

isnt this a conflict of interest?

@Kizee 1 your question was “where does this happen?”
In the UK it does, The Debt management office is an executive arm of HM Treasury ,Its key roles include;
(i) Making new issues of UK govt securities ( gilts).
(ii) Overseeing the secondary market for dealing in gilts with help from the LSE.
The DMO ensures that the government borrows the money it requires to fund its Public Sector Net Cash Requirement (PSNCR).
In the US the Federal Reserve is the depositary of most but not all govt bonds…
Now to our local scenario I believe the CBK has always played its role perfectly until this saga occurred and it only happened because there was a loophole in their system that enabled cunning individuals to manipulate it,remember after the primary the bond issue is scattered amongst different investors and unless reconciliation is done daily so that the issuer gets to know what investor A holds and whats the total figure out there of the original issue there is a problem.
I have a question though in regards to this fraud,lets say 10 Billion is issued via a primary,lets call our bond FXD 1/2013…immediately the primary is completed and various investors have received what they had tendered for you cannot add another 100m on the original primary unless it’s a re-opening …so how did this guys go about it? Coupon payments, secondary trading how was this possible for a long while without red flags being raised….

Over the past two weeks, the bond market has dominated headlines after it emerged that fraudulent papers worth Sh100.5 million were created and introduced into the market.

The Capital Markets Authority (CMA) flexed its policing muscles by banning half a dozen errant dealers from being employees or directors of its licensees or any listed company.

Some bond dealers have felt that the traders were given excessive punishment, given that they were not in a position to create the fake bonds and only became involved in the scam after the papers had been introduced in the market.
The Central Bank of Kenya (CBK), the sole issuer of government securities, said that the government bond trade scam arose of out of a rogue employee creating and crediting fake accounts with bonds during the banking sector regulator’s IT system changeover, which were then sold to traders.

In 2012 alone, the secondary bond market traded a total of Sh544 billion worth of bonds and this year market turnover has reached nearly Sh320 billion. An innocent buyer cannot possibly detect that a bond is fraudulent since it is assumed that all issues have to pass the strict CBK pre-sale approval process.

This is premised on the fact that CBK, as the sole issuer and custodian of government bonds, cannot allow securities of questionable quality to circulate in the market.

Extremely informal
When CMA first got wind of this scam, it sent out staff to audit some of the affected traders. What they found was a structure of bonds dealing where market making is extremely informal; with many of the day-to-day trades largely originating from the market intermediaries themselves (rarely are retail investors involved).

Competition is extremely intense among banks, fund managers, insurance companies, large investment banks/brokers some of who are widely known to run large bond trading positions of their own. Some of these large players have became even more innovative and established their own arbitrage accounts with some local banks,stretching the current trading regulations as far as is legally possible.

The clear message that the investigators may have picked is that the current market making structure is getting more innovatively complex and the bond market is now in dire need of three key ingredients:

1. a clear margin trading policy to further enhance the use of arbitrage accounts,

2. a well regulated primary dealership structure

&

3. Discount house(s).

All of these structures can only be created with the cooperation and accommodation of the CMA. Such regulations should provide that not everybody should be allowed to participate in a primary auction of government bonds. Retail investors who buy bonds in small quantities should be given a less-punitive window to exit their small positions through the establishment of discount houses.

Most important, the market urgently requires a pricing mechanism so that bids and offers should have defined spreads, a breach of which should attract a penalty.

By working in joint harmony with dealers, the CMA can help to grow bonds dealing to the next level, even as it works on catching and punishing errant traders.