This archive report was first published on 22 July 2019.
The Nairobi Securities Exchange's (NSE) derivatives market, which started trading on July 4, faced challenges in its second week, with a significant decline in the total volume of futures contracts settled.
According to the Central Bank of Kenya's weekly bulletin, the total volume of futures contracts settled in the week ending July 18 declined sharply compared to the previous week, from 47 contracts valued at Sh2,401,440 to just 7 contracts valued at Sh416,580.
The Equity Index Futures and Single Stock Futures, which are part of the NSE Derivatives Market, were introduced to help investors manage risks associated with market fluctuations in primary assets such as bonds, commodities, currencies, and stocks.
Derivatives 'derive' their value from these primary assets, which are based on future expected price movements. For instance, while one trader may bet on a fall in the price of a given stock, others may bet on it rising.
The NSE has set aside Sh130 million in a settlement guarantee fund to mitigate the risk of default by players.
Meanwhile, the NSE's equity market, from which the derivatives market derives most of its activities, had a mixed performance in the week, with the NSE 20 Share Index declining by 0.38 per cent to 2676.71 points compared to 2686.94 in the previous week.
