Capital Markets

NSE chief targets derivatives trading from early March

NSE chief executive officer Geoffrey Odundo. PHOTO | FILE
NSE chief executive officer Geoffrey Odundo. PHOTO | FILE 

Trading in derivatives at the Nairobi Securities Exchange will kick off in the first week of March, chief executive officer Geoffrey Odundo has said.

Derivatives are financial instruments that investors use to hedge against risk and consist of futures, options, swaps and forward contracts.

They allow investors to bet on the direction of the price movement of shares, market indices, commodities and bonds, create insurance against possible future losses while leaving the investor free to enjoy the potential gains of their investments.

“We are now finalising on the contracts to bring to the market, doing final system tests and putting in place a consultant to provide support so that we achieve the rollout in a structured way. We are ready and should be hitting the market in early March,” Mr Odundo told the Business Daily.

The NSE plans to start with index, single stock and currency futures in its market, which is modelled on the Johannesburg Stock Exchange (JSE) Derivatives Market.

Market experts have championed a phased approach in the introduction of the new products given that many investors are unfamiliar with the different types of derivative and futures products, which are only common in bigger bourses across the world.

The index contract will be based on the NSE 25 index, which was chosen because it is market cap weighted as opposed to the NSE 20 Share Index which is price weighted.

The currency contract will be on the shilling-US dollar pairing, which is predominantly exchanged in over the counter markets given the dollar’s position as the main medium of foreign trade.

According to Mr Odundo, the currency hedging will be targeting importers who have borne the brunt of a weakening shilling on their purchases, as well as the government.