Businesses will soon be able to hedge their assets to access cheap funds once the Nairobi Securities Exchange (NSE) establishes the futures market.
Nairobi Securities Exchange chief executive Geoffrey Odundo Wednesday said they had been given an extension to mid-October to finalise plans to open the derivatives exchange market.
The derivatives exchange market allows companies access to funds hedging on the value of their assets with a fixed “payback” at a future time agreed by the parties.
Mr Odundo said that the planned derivatives market would soon be rolled out after test runs on the laid out ICT infrastructure were carried out successfully by a team seconded from the NSE.
He said NSE had laid out the necessary infrastructure to enable the futures market take off seamlessly adding that the team had conducted benchmark studies in successful markets in India, Brazil and Hong Kong.
NSE has pledged to provide the derivatives exchange with a market capitalization of Sh1 billion in the next three years while a further Sh20 million has already been deposited with the futures market clearinghouse.
Another Sh10 million has been preserved for the planned derivatives exchange investment protection fund.
Speaking at a capacity building workshop conducted by Dubai Financial Services Authority director Mr Eric Salomons, Mr Odundo said they would first deal with single stock futures (SSF) in the financial segment which it will peg to the Kenyan shilling, but NSE will later allow other currencies.
SINGLE STOCK FUTURES
SSFs give traders an avenue to loan out their money to companies seeking funds for various developments but with an agreement to be paid through the derivatives exchange with a higher fixed price at a later date..
In a statement seen by the Nation, Capital Markets Authority chief executive Paul Muthaura said the regulatory framework was already in place having undergone extensive peer review by other regulators to ensure it is aligned to the International Organization of Securities Commissions (IOSCO) Principles.
“The establishment of a NDE market is expected to attract both domestic and foreign participation and to benefit all sectors of the economy through, among others, providing products to address volatility in interest rates, currency and in the longer term, volatility in prices of commodities,’’ wrote Muthaura.
Mr Odundo said that institutional investors would benefit a great deal since they would be assured of high returns not based on the volatile securities markets that at times sees companies count losses when share prices drop.
Mr Salomons said that Kenya must conduct a public awareness campaign so as to attract Kenyans to invest their funds in the futures market.
He said the Dubai market which he helped found in 2004 had since attracted funds from many countries after it introduced a DE market mainly dealing with the hedging of oil.