Capital Markets

NSE delays launch of derivatives trade by three months

NSE

Nairobi Securities Exchange staff on the bourse’s trading floor. PHOTO | FILE

The Nairobi Securities Exchange (NSE) will now launch the derivatives exchange by June, about three months late due to longer-than-anticipated period for training and preparing market participants for the business.

The NSE said the delay was also occasioned by preparation of the systems and processes to be used in the trading of the derivatives business.

However, other market players intimated that the three-month delay may also have been caused by the fact that the Capital Markets Authority (CMA) is yet to give a go-ahead on the fees that clients will pay the NSE and the fact that other regulators may have been slow to appreciate their roles in the trading process.

NSE derivatives market director Terrence Adembesa, however, said the preparations were ongoing, noting that six banks — NIC, Barclays Kenya, Commercial Bank of Africa, CfC Stanbic, Co-op and Chase ­— had already accepted to be included in the list of those who will do the clearing to allow settlement or payment for the securities.

“A number of the targeted players in the market are ready. We can go live with a small number of players, but we want to have a critical number so that everything is smooth,” said Mr Adembesa in an interview.

The NSE was to launch the derivatives market towards the end of last year before this was pushed to early this month.

Mr Adembesa said that the various stakeholders involved include stockbrokers and NSE back office staff, risk management, IT, connectivity and research teams.

Others are regulators such as the Capital Markets Authority (CMA), Central Bank of Kenya, the Retirement Benefits Authority, the Insurance Regulatory Authority, commercial banks’ treasury managers, investment banks, listed companies, fund managers and investors. “We expect that other banks will come on board with time,” said Mr Adembesa.

The NSE has proposed to the CMA to approve charges of between Sh15 and Sh25 per derivative contract. The exchange could make hundreds of millions and even billions from the numerous such contracts when the trading takes off.

According to the trading rules, the amount approved by the CMA for the exchange will influence what other service providers charge. The clearing members will charge between 50 and 100 per cent of the fee levied by the exchange.

In building the new exchange platform, the NSE took lessons from India, South Africa and Brazil.

Stockbrokers say they are keen to see the derivatives begin to trade as a way not only to develop and deepen the market but also to supplement their incomes.

“Many stockbrokers and investment are not performing very well. When you see a broker make Sh7 million in a whole year, then business is not good. So we are keen to see this derivatives start trading,” said Willie Njoroge, chief executive at Kenya Association of Stockbrokers and Investment Banks.