Futures trading to secure tea earnings
A worker plucks tea leaves on June 10, 2016 at Nandi Tea Estate Limited, in Nandi Hills. Nairobi Securities Exchange is working on an instrument to secure tea farmers from market volatility. PHOTO | JARED NYATAYA | NATION MEDIA GROUP
What you need to know:
- The derivative feature will be traded in an international exchange as delays mar the launch of Nairobi Securities Exchange (NSE) own sophisticated market for hedging.
An instrument to secure tea farmers and buyers from volatility in the market may soon be introduced as international brokerage company INTL FCStone moves to implement a futures contract for the sub-sector.
The derivative feature will be traded in an international exchange as delays mar the launch of Nairobi Securities Exchange (NSE) own sophisticated market for hedging.
With a futures contract, one is able to fix a price against an investor or speculator for a cycle so that when prices fall, the farmer is insured but when they rise, the investor makes a killing.
INTL FCStone was commissioned by industry players to carry out a study on the establishment of a futures trading for tea in Kenya.
“This instrument will probably be traded on an international platform to start with because we need the infrastructure to be in place,” INTL FCStone Senior Vice President EMEA Stuart Ponder said on Monday ahead of a workshop with government on commodities exchange.
The Nairobi bourse is struggling to complete setting up the derivatives market to enable dealers in shares and currencies to enter into binding contracts for buying or selling the units at a specified price and time in future, helping them better manage risks, hedge, arbitrage and speculate over their future value.
"We are planning to set up the derivative market this quarter, everything is ready what we are focusing on is building capacity and that is why we cannot give timelines," Derivatives market director at the NSE Terry Adembesa said.
NSE had planned to have the derivative trading online last year but was hit by delays that saw the bourse move it to March, this month and now later in the year.
The exchange got a licence to operate the segment in October last year as part of diversifying its products. And Mr Adembesa says a lot of back office work with the regulator has been going on to date.
Mr Ponder said once the Kenyan market is established and deepened, the futures contract may become a feature of the evolving market in the country “but we are not there yet”.
