NSE to open derivatives market
27 October 2015, 19:18
Nairobi - 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
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
"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
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.
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