CBK lowers interbank forex trading limit to $100,000
Central Bank of Kenya (CBK) has reduced the minimum amount that banks may trade in the official interbank forex market from $250,000 (Sh39.3 million) to $100,000 (Sh15.7 million)
The Central Bank of Kenya (CBK)
In response to the introduction of an electronic trading platform that is anticipated to enhance supply and price discovery in the forex market, the Central Bank of Kenya (CBK) has reduced the minimum amount that banks may trade in the official interbank forex market from $250,000 (Sh39.3 million) to $100,000 (Sh15.7 million).
The margin of 20 cents between bids and asks has also been eliminated by a CBK circular on the new platform, known as Electronic Matching Systems (EMS), thereby allowing market players to freely negotiate pricing based on supply and demand.
In a 2015 CBK circular to banks, the minimum trade limit on the interbank market was set at $500,000 (Sh78.7 million), along with the introduction of the 20-cent spread.
In an August 2023 circular, the trading limit was later cut in half, paving the way for the launch of the electronic platform.
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According to the CBK rule, there will be a minimum tradable quantity of $100,000 in EMS, with extra lot sizes of $50,000. Through Request for Quote, system users can transact quantities over the minimum tradable quantity [a direct trading line].
One of the major changes the CBK recognized as necessary last year in response to the almost catastrophic collapse of the interbank foreign exchange market—whose issues led to a disruption in the supply of dollars, which in turn created a parallel foreign currency market rate—was the implementation of the electronic platform.
Banks have complained about the regulator’s strict enforcement on deals that deviated from the official exchange rate and permissible spread limits.
Every licenced commercial bank in Kenya has been granted access to the EMS as a system participant. Non-banking entities can also apply to join the EMS upon submission to the CBK.
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The quotations will be anonymous until the trades are matched for settlement, but participants will use the EMS to place their buy or sell orders.
The top ten commercial banks in terms of FX trading have been designated by the CBK to serve as market makers for the platform, ensuring fair prices and liquidity in the market.
Absa Bank Kenya, Citibank Kenya, DTB, Equity Group, and I&M Bank are among the designated lenders. The Co-operative Bank of Kenya, KCB, NCBA, Stanbic Bank Kenya, and Standard Chartered Bank Kenya are the others.
