The Nairobi Securities Exchange is pushing ahead with plans to launch a derivatives market, including preparing product and contract specifications, and public education and stakeholder engagement meetings.
This follows the news on 19 Dec that the Capital Markets Authority granted NSE a provisional licence to set up and operate a derivatives exchange and approved the NSE’s Derivatives Exchange Rules and related documentation.
According to a press release put out by the NSE, acting Chief Executive Andrew Wachira said: “The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts. The exchange has invested in the development of the derivatives market to ensure that it will meet global standards including mechanisms for trading, clearing and settlement of the instruments traded.”
NSE’s derivatives market is modelled on the derivatives market at the Johannesburg Stock Exchange (JSE), which offers trading in futures and options on equities, bonds, indices, interest rates, currencies and commodities.
The latest move is in line with the strategic plan of the NSE. According to a report on Bloomberg earlier this year in February this envisages market capitalization soaring fourfold to KES 7.2 trillion ($79 billion) by 2023 from KES1.85 trillion.
NSE Chairman Eddy Njoroge noted in the press release: “Derivatives are among the most affordable and convenient means companies can cushion themselves against interest-rate fluctuations, exchange-rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets. The establishment of a derivatives market is a step towards growing the NSE brand and shareholder value and is also in line with Kenya’s Vision 2030 of deepening our Capital Markets and making Nairobi the financial services hub of East Africa.”
According to Bloomberg, a system for trading derivatives has already been installed. The law to allow creation of the futures market was passed in Dec 2013 and rules were submitted for approval by mid-February.
“Derivatives” get their name because their value is derived from another asset class such as a share, a physical commodity or an index. The JSE was ranked the 6th largest exchange by the number of single stock futures traded and 9th by the number of currency derivatives traded in 2012 in the World Federation of Exchanges Annual Derivatives Market Survey, according to the press release.