NSE Granted Approval to Launch Derivatives Exchange Market- NEXT

By Sharon Chweya

The Capital Markets Authority has granted approval to Nairobi Securities Exchange (NSE) to launch and operate the Derivatives Exchange Market, the Next.

This follows the successful completion of a six-month Derivatives Pilot Test Phase conducted between July and December 2018, and resolution of key issues that emanated from the test phase.

“The approval granted to the NSE to operationalize a Derivatives Market marks the achievement of a flagship project under the Economic Pillar of Kenya’s Vision 2030. The Derivatives Market will facilitate deeper and more liquid capital markets and position Kenya closer to becoming the Heart of Capital Markets Investment in Africa, as envisioned in the Capital Markets Master Plan,” noted CMA Chief Executive, Mr. Paul Muthaura, MBS.

NEXT, NSE Derivative Market was established as a result of the integration of the Kenyan financial market with international markets, increased volatility in asset prices in local and international financial markets, need for more sophisticated risk management tools and strategies and the need to broaden and deepen Kenyan financial markets.

Initially, the Derivatives Market will offer investors Equity Single Stock Futures (SSF) and Equity Index Futures (EIF) and later introduce other financial and commodities derivatives.

The EIF has a market fee of 0.14 percent, characterized by price transparency and liquidity, lower transaction cost, reduction in counter-party risk and centralized clearing.

The SSF has a market fee of 0.17 percent, characterized by a minimum quote spread, efficient and transparent hedge, liquidity and investors can finally have exposure on share price movements without owning the underlying share.

Mr. Matthew Mukisu, Manager, Derivatives Unit observed that a robust infrastructure has been set up to facilitate trading, risk management, clearing, and settlement. Two banks, Stanbic Bank and the Co-operative Bank, have been approved by their primary regulator to provide clearing and settlement for the Derivatives Exchange Market.