NSE Derivatives markets edges closer

You can now make money even if you have 10 percent of the value required to buy shares under a new derivative market that is about to go live at the NSE (Nairobi Securities Exchange).


The Capital Markets Authority says the window dubbed Nairobi Securities Exchange Direct will be piloted next week with actual cash being put in.

CMA Derivatives Manager  Matthew Mukisu said the system has been undergoing a dummy cycle but this month it will use live cash to analyze gaps that need to be filled before the project is fully on board.

In the dummy trade the stocks of Equity Bank, Safaricom, and Kenya Commercial Bank were traded among seven market players including AIB Capital, Faida Investment Bank, and Sterling Capital. Equity Bank was the most traded counter.

“Next year we will analyze it and we will be able to make a decision whether we are ready to go live,” Mr. Mukisu said.

Currently, the market has derivative contracts which are mostly private boardroom issues that do not involve the larger public like the Kenya Airways hedge on the price of fuel.

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Unlike over the counter derivatives, exchange-traded derivatives will increase market transparency give a product the optimum value and allow for anyone to participate in the hedge.

Presently Kenya will offer single stock derivatives and index-based derivatives targeting listed firms in the NSE.

This, however, poses a liquidity challenge since less than ten of the 64 listed firms control almost 80 percent of the market capitalization.

The market regulator has already approved 8 brokers, and investment bankers to set up derivative funds in preparation for the market.

Cooperative Bank and Stanbic Bank have also gotten Central Bank of Kenya approvals to act as clearing members and help settle the contracts.

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