CMA licenses Nairobi bourse for trade in derivatives

What you need to know:

Capital Markets Authority has issued a provisional license allowing the Nairobi bourse to open a derivatives exchange.
This will enable spot and futures trading of multi-asset classes, including equities, currency and interest rate products.

The Capital Markets Authority (CMA) has approved the Nairobi Securities Exchange’s plans to set up and run a market for trade in derivatives.

CMA has issued a provisional license allowing the Nairobi bourse to open a derivatives exchange that will allow listings of instruments like futures contracts and options. These allow investors to bet on the direction of the price movement of their underlying assets.

“(The licensing) follows the satisfaction of the requirements set out in Section 36A of the Capital Markets Act and the Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations, 2013,” NSE officials said in a statement released Friday.

READ: NSE seeks licence for new futures exchange.

“The NSE has also received approval of the NSE Derivatives Exchange Rules and related documentation in support of the application.”

Exchange Chairman Eddy Njoroge noted: “Derivatives are among the most affordable and convenient means companies can use to cushion themselves against interest rates fluctuations, exchange rate volatility and commodity prices. They also boost liquidity in the underlying assets.”

NSE acting Chief Executive Andrew Wachira said: “The… Derivatives Exchange will enable spot and futures trading of multi-asset classes, including equities, currency and interest rate products, as well as varied forms of agricultural commodities contracts.”

READ: NSE Sh1bn share cap goal to open riskier trades.

NSE’s planned market is modeled on the Johannesburg Stock Exchange (JSE) Derivatives Market, which offers trading of, among others, futures and options on equities, bonds, indices, interest rates, currencies and commodities.

“People trade standardized contracts to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future,” the NSE explains.

“Through On-Exchange trading, clients are provided with transparency, elimination of counterparty risk, and the Exchange acts as the independent source for price discovery.”