Kenyan bourse set to launch derivatives market

Kenya's Nairobi Securities Exchange (NSE) said on Tuesday it has received formal approval from the country's financial markets regulator to operate a Derivatives Market.

NSE's CEO Geoffrey Odundo said the regulatory approval, granted by the Capital Market Authority (CMA), enables the bourse to achieve its strategic plan which seeks to enhance new listings and diversification of products in order to take advantage of new growth opportunities in the market.

"The approval of the Futures Exchange marks a great milestone for the financial markets in East and Central Africa. This is a firm commitment towards deepening of our capital markets," Odundo said.

The Derivatives Market is the financial market of instruments like futures contracts or options. It's named "derivatives" because the value of these instruments is derived from another asset class (such as stock, physical commodity, index, among others).

NSE, which currently trades stocks and bonds, is increasing the variety of securities on offer as the industry regulator seeks to boost growth of the country's capital markets to make Nairobi the financial services hub of East Africa.

Globally, there has been significant growth in the volumes in exchange traded derivatives contracts in currency, equities, debt and other asset classes, with compound annual growth rates in excess of 32 percent, on account of superiority in terms of transparency, accessibility, growing economies and efficiency over other market segments.

Odundo said the bourse believes the derivatives market will provide advantages such as minimal upfront investment, lower transaction costs compared to investing in the underlying assets and risk mitigation given the increased volatility in asset prices, making this market attractive to investors.

"Market participants will find higher preference in such a market, given its ability to mitigate counterparty and credit risks fuelled by the need for greater transparency and security in trades, increase in liquidity and advancements in clearing and settlement technologies," he said.

Following the approval, Odundo said NSE is in the process of finalizing the membership of market participants (clearing and trading members) and ongoing regulatory requirements while enhancing industry and investor awareness on the products to be rolled out.

"Subsequently the Exchange will announce the Derivatives Market launch date shortly thereafter," the NSE chief said.

NSE's Derivatives Market is modeled from the Johannesburg Stock Exchange Derivatives Market which offers trading of a variety of Derivatives, including Futures and Options on Equities, bonds, indices, interest rates, currencies and commodities. Enditem