Kenya to launch derivatives market
What you need to know:
- In February, the bourse incorporated a subsidiary, the NSE Clear Limited, to act as a clearing house for the derivatives exchange.
- “Derivatives are among the most affordable and convenient means companies can cushion themselves against interest rates fluctuations, exchange rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets,” NSE chairman Eddy Njoroge said.
- “The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts,” NSE acting CEO Andrew Wachira said.
Investors in the stock market will have a new investment vehicle next year. This comes after the Nairobi Securities Exchange (NSE) got a nod to launch derivatives market.
The provisional permit is, however, only valid for six months before a substantive one is issued.
The bourse has also been issued with an approval of derivatives exchange rules that allow it to draft regulations for the management of the futures market and handling trade disputes.
“Derivatives are among the most affordable and convenient means companies can cushion themselves against interest rates fluctuations, exchange rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets,” NSE chairman Eddy Njoroge said.
He noted that the bourse is on course to achieve its strategic plan of increasing new listings and diversifying products.
“The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts,” NSE acting CEO Andrew Wachira said.
The bourse, he said, was now preparing product and contract specifications ahead of the launch of the derivatives market. Timelines for setting up the derivatives exchange could be between 2014 and 2016.
CLEARING HOUSE
The derivatives market will facilitate trading in contracts involving the buying and selling of commodities or financial instruments at a specified price with delivery set at a definite time in the future.
NSE’s derivatives market will be modelled along the Johannesburg Stock Exchange, which offers trading of equities, bonds, interest rates, currencies and commodities.
In February, the bourse incorporated a subsidiary, the NSE Clear Limited, to act as a clearing house for the derivatives exchange.
The subsidiary, will be responsible for settling trading accounts, clearing trades, collecting and maintaining funds used in buying of securities, regulating delivery and reporting trading data.
It will also be a platform where claims and liabilities of futures brokers and their clients in respect of different futures contracts confirmed by the exchange are received, adjusted, settled and paid.
The minimum capital requirement for establishing the derivatives exchange is Sh500 million as set in the Capital Markets (Amendment) Act, 2013.
The law had previously set the minimum capital requirement at Sh1 billion, a provision the NSE strongly contested, arguing, it would lock it out in the bid to run the market.
Part of the Sh627 million the NSE raised in an initial public offering mid this year was to be used as seed capital towards the settlement guarantee fund for futures exchange and investing in new systems to support its expansion.
