The Nairobi Securities Exchange (NSE) is banking on the recently rolled out derivatives trading to deepen capital markets, where turnover and trading activity has remained flat in recent years.
NSE chief executive Geoffrey Odundo yesterday said the derivatives trading would boost liquidity at the bourse, which has 65 listed firms where telcos and banks dominate trade.
“The newly launched NEXT Derivatives Market will enhance investors portfolio performance by making available risk management tools in the wake of increasing asset price volatility in both domestic and international markets,” said Mr Odundo when the bourse officially launched the derivatives market.
Derivatives are an investment tool whose value is derived from an underlying asset like bonds, commodities, currencies, interest rates, market indexes and stocks based on the expected future price movement of the asset.
They allow investors to make a gain or hedge against losses by taking a bet on the future price movement.
The NSE, which has been grappling with the challenges of setting up a derivatives market for years, becomes the second exchange in sub-Saharan Africa region after Johannesburg to launch trading. To boost uptake, Mr Odundo said the bourse would undertake investor awareness.
“The launch of the NSE NEXT Derivatives Market is a momentous achievement towards the attainment of the financial services sector aspirations,” said Treasury Cabinet Administrative Secretary Nelson Gaichuhie.