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EBND: Electronic Bond Trading Platform

A major step in the development of fixed income market in Pakistan is the introduction of an electronic trading platform launched on January 11, 2010. This launch was followed by a successful trial run of the platform which began on December 15, 2009 by ten Primary Dealers (PDs) of the government securities.

The platform provided by Bloomberg Company was selected by a committee comprising members from commercial banks and SBP, and is expected to bring environment secondary market activities.

In the first two days of its introduction, volume of the transactions conducted through E-Bond was to the tune of PKR 4.55 billion.

Benefits of EBND

This platform would not just be a trading platform but it will serve as a central database for all fixed income activities in the country resulting in improved price discovery and liquidity in the securities.

The availability of real-time information about yields and turnover will help to achieve both investor’s as well as corporate issuer’s perspectives.

For the investors, the platform will provide accessibility to the marketable securities (MTBs, PIBs & GOP Ijara Sukkuks) and help them in diversification of their investments portfolio with expected better returns based on the risk adjusted return basis. Achieving liquidity through the system will be an added advantage for the investor.

The platform will provide the issuer the mechanism of price discovery with improved liquidity in the yield curve from three months to 30 years. The issuer could benchmark on their upcoming corporate bonds or funding requirements and ultimately it will reduce their cost of borrowing due to reduced liquidity premiums and wider investor base.

In the longer run, the State Bank of Pakistan would be able to reduce cost of government borrowing through creation of wider investor base resulting price efficiency.

That this platform is tried and tested in the global financial markets is an added advantage. It will provide international investors with an additional window to access Pakistan’s financial markets and help put Pakistan on the global financial market’s map.

The introduction of this platform is not expected to provide a boost to fixed income markets overnight, but it would definitely hold a lot of promise for all market participants.

Phases of implementation

Since sovereign yield curve serves as the benchmark for all other borrowings in a country, the focus in the initial phase will be on the development of sovereign paper market. The most active participants in this market are the PDs in government securities. Therefore, it has been made mandatory for them to use this platform for market making in the sovereign paper.

Discussions are being held with non-PD banks, Asset Management Companies (AMCs), insurance companies and employee funds to be part of the system, thus bringing efficient environment.

Initially, this system will capture government securities (MTBs, PIBs and Sukkuks). Going forward this platform would be used to conduct primary auctions, OMOs and other instruments. Additionally, work is also in progress to link this platform to our RTGS payment system to create a streamline process.

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