NSE set to open futures exchange by end of year

The NSE is set to open a futures exchange for trading of currency, market indices and interest rate contracts by the end of this year.

Chief executive of the Nairobi Securities Exchange (NSE) Peter Mwangi said the bourse had already installed a trading system to handle the transactions but was yet to draft and submit operation rules to the capital markets regulator for approval.

A futures exchange ordinarily helps businesses to mitigate against future losses arising from fluctuations in prices.

“The market is ready, people need those instruments to hedge against risks,” said Mr Mwangi in an interview. Futures contracts involve signing agreements to exchange specified goods such as currency or oil at a specified future date and price.

Kenyan companies such as beer maker EABL, Kenya Airways, oil marketer KenolKobil, and cement manufacturer East African Portland Cement have at different times signed hedging contracts to cushion against fluctuations in the exchange rate and oil prices.

A local futures exchange would save Kenyan companies costs that they incur in signing the contracts abroad.

Mr Mwangi said the new exchange would focus on basic futures contracts including interest rate and currency hedges as well as oil purchase.

“Later we can introduce other more complex futures contracts as the market grows,” said Mr Mwangi.

A futures exchange also involves trade in commodities such as cereals and minerals; some of which require huge and efficiently run warehousing facilities to facilitate settlement of contracts.

The Capital Markets Authority (CMA) had last year lobbied Parliament to set stringent regulations for a futures exchange, including setting a minimum capital requirement of Sh1 billion and denying NSE powers to set trading fees.

READ: CMA seeks full control of futures market

CMA’s take was that futures markets involve huge transactions that can bring down a weak exchange which does not have financial muscle to absorb potential losses.