The Central Bank of Kenya has introduced the Electronic Matching Systems (EMS), an electronic trading platform designed to enhance liquidity and efficiency in the forex market and improve price discovery. The minimum amount for formal interbank forex market trading has been reduced from $250,000 (KES39.3 million) to $100,000 (KES15.7 million).
Unlike the previous mandatory spread of 20 cents between bids and asks, the EMS platform now allows market participants to negotiate rates based on supply and demand dynamics. This change is a significant departure from the fixed spread and $500,000 minimum trade limit established in 2015, which was halved in August 2023 in anticipation of the EMS launch.
According to the CBK rules, the minimum tradable amount in EMS is $100,000, with additional lot sizes of $50,000. Transactions outside this minimum can be conducted via Request for Quote, a direct trading line.
The EMS initiative aims to address challenges in the interbank forex market, which experienced a near-collapse, leading to a shortage in dollar supply and the emergence of a parallel forex rate last year. All licensed commercial banks in Kenya are system participants, with non-banking entities eligible upon application to the CBK.
To ensure market liquidity and fair pricing, the CBK has appointed the top 10 commercial banks in foreign exchange trading as market markers. These banks, including Absa Bank Kenya, Citibank Kenya, DTB, Equity Group, I&M Bank, KCB, NCBA, Stanbic Bank Kenya, Standard Chartered Bank Kenya, and Co-operative Bank of Kenya, are responsible for providing continuous two-way quotes for the minimum tradable amount in the EMS.
The EMS operates on an anonymous quotation system until trades are matched for settlement, promoting transparency and efficiency in the trading environment.
