This archive report was first published on 12 July 2019.
On July 11, 2019, the Nairobi Securities Exchange (NSE) launched its derivatives market, giving investors the opportunity to predict and bet on the future price of securities.
The new market allows investors to deposit only 10% of the value of a stock to bet on its price movement, with the option to buy 1000 shares for stocks trading below Sh100 and 100 shares for those trading above Sh100.
According to Terrence Adembesa, the NSE Derivatives Market Director, the trading process is pre-funded, requiring investors to put in money first before they are allowed to play. The settlement between positions will also be done on a daily basis, unlike before when the contract had to mature first.
"If you want to buy a stock, you have to pay the entire value of that stock but if you are buying a derivative e-contract, you only have to pay a fraction of the initial margin, it is a good faith deposit for the duration of that contract," Mr Adembesa explained.
The NSE has also set aside Sh130 million in a settlement guarantee fund in case a player defaults. The regulator has approved eight brokers and investment bankers to set up derivative funds in preparation for the market.
With the launch of the derivatives market, the NSE aims to increase market transparency and provide a product with the optimum value, allowing anyone to participate in the hedge.
