This archive report was first published on 4 July 2019.
July 4, 2019 - The Nairobi Securities Exchange (NSE) has taken a significant step in its quest to become a leading financial services hub by launching its derivatives market, known as the NSE Derivatives Market (NEXT). The market started trading on Thursday, providing local and international investors with new opportunities to diversify their portfolios and manage risk.
According to the NSE, the derivatives market will enable market players to better manage risk and deploy capital more efficiently. Futures contracts, which are a key component of the market, provide risk management tools in the wake of unexpected volatility in asset prices.
The derivatives market is expected to help the country consolidate its position as a leading financial services hub, offering a wide variety of investment products. The market will initially offer index futures and single stock futures on selected indices and stocks.
The NSE has selected seven stocks for the single stock futures, including Safaricom Plc, Kenya Commercial Bank Group Plc, Equity Group Holdings Plc, KenGen Co. Plc, East African Breweries Ltd, British American Tobacco Kenya Plc, and Bamburi Cement Ltd. The selection was based on certain eligibility criteria, including a minimum average daily turnover of KES 7 million and a market capitalization of at least KES 50 billion.
As part of its efforts to safeguard market infrastructure and investor interests, the NSE has established the Settlement Guarantee Fund (SGF) and the Investor Protection Fund (IPF). The SGF will settle specified claims by derivatives members arising out of transactions in derivative securities, while the IPF will satisfy specified claims by the investing public arising out of non-settlement of obligations owed to them by trading members or losses incurred by reason of the default of trading members.
Stanbic Bank and Co-operative Bank have been licensed by the Central Bank of Kenya to handle clearing and settlement for the derivatives exchange. The NSE will be the second exchange in Sub-Saharan Africa after Johannesburg to launch trading in derivatives.
