NAIROBI, Kenya, Oct 27 – The Nairobi Securities Exchange (NSE) has received formal approval from the Capital Markets Authority (CMA) to operate a Derivatives Market.
A Derivatives Market is a central financial exchange where people can trade standardised futures contracts – that is, a contract 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 approval follows the satisfactory fulfilment of the requirements stipulated under Section 36A of the Capital Markets Act and the Capital Markets (Futures Exchange) (Licensing Requirements) Regulations and further requirements as imposed by the Authority following the provisional license granted to the Exchange on December 18, 2014.
NSE Chief Executive Geoffrey Odundo says the approval marks a milestone for the financial markets in East and Central Africa and is a firm commitment towards deepening of the Capital Markets.
“Globally, there has been significant growth in the volumes in exchange traded derivatives contracts in currency, equities, debt and other asset classes – with compound annual growth rates in excess of 32 percent,” Odundo said.
He believes the Derivatives Market will provide advantages such as minimal upfront investment, lower transaction costs compared to investing in the underlying assets and risk mitigation given the increased volatility in asset prices, making this market attractive to investors.
Following the approval, the bourse is in the process of finalising the membership of market participants (clearing and trading members) and ongoing regulatory requirements while enhancing industry and investor awareness on the products to be rolled out.
Astute investors transact in derivatives to manage the risks associated with the underlying security, to protect against fluctuations in value, or to profit from periods of inactivity or decline.