Investors will from next Thursday be able to enter into quarterly contracts to buy or sell shares on seven blue-chip counters at specified prices to be paid at agreed future dates.
The Nairobi Securities Exchange (NSE) on Wednesday announced the launch of the long-delayed financial derivatives market that will also allow investors to bet on a set of 25 stocks under the NSE 25 Share Index.
NSE’s Next Derivatives Market is set for a soft launch (restricted to a few investors) on July 4, before opening up for all investors a week later. This will make Nairobi bourse only the second in sub-Saharan Africa after Johannesburg to trade in futures contracts.
The single stock futures will initially be traded on Safaricom #ticker:SCOM, KCB #ticker:KCB, Equity #ticker:EQTY, East African Breweries #ticker:EABL, BAT Kenya #ticker:BAT, KenGen #ticker:KEGN and Bamburi Cement #ticker:BAMB counters — the most heavily traded stocks.
The futures contracts enable individual and institutional investors better manage risks, hedge, arbitrage and speculate over the future value of the participating stocks and index.
The future value of the contracts will be derived from the value of the underlying stocks and the NSE 25 Share Index, which was launched in October 2015 to track the performance of the blue-chip firms, largely for the derivatives market.
One contract will be equivalent to 1,000 underlying shares for stocks trading below Sh100 (Safaricom, KCB, Equity and KenGen), while for those trading above Sh100 (BAT, EABL and Bamburi), a contract will equal 100 underlying shares.
One index point will, on the other hand, equal Sh100 under NSE trading rules for derivatives.
The expiry date for the quarterly contracts will be third Thursday of every expiry month.
“The market is very demand-driven from the conversations we have had with different investors as it allows firms to hedge and manage risks through more efficient use of capital,” Rufus Gitau, business development manager for derivatives at NSE, said.
“Previously institutional and foreign investors had very few ways of managing risks, which was not to invest, but now they can take a position.”