The Nairobi Securities Exchange Plc (NSE) is set to introduce Options Derivatives trading on its Derivatives Market (NEXT) following approval from the Capital Markets Authority.
- The introduction of options contracts seeks to develop and expand Kenya’s derivatives market.
- Options are financial derivatives contracts that grant buyers the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and date.
- Investors on NSE will soon trade Options on the existing NSE futures contracts for single stocks and indices with plans for a wider variety of financial derivatives in future.
“The introduction will provide investors with new instruments to support efficient capital deployment whilst offering advanced risk management tools enabling hedge against adverse price movements in the underlying contracts,” Frank Mwiti, CEO of the NSE noted in a statement on Friday.
In light of the upcoming launch, Mwiti fronted plans for extensive investor education and run additional trade and settlement tests with clearing and trading members. “Equally, the NSE will monitor various risk management control measures to limit potential defaults thus ensuring the Derivatives market continues to attract a high level of trust from both investors and trading participants,” he added.
All contracts will be cash-settled using the existing infrastructure of NSE Clear and supported by the NSE’s network of clearing and trading members. As the NSE moves forward with this initiative, it seeks to position itself as a key player in providing innovative financial products to meet the evolving needs of investors.
As of September 2024, Kenya’s derivatives market turnover surpassed full year turnovers of 2023 and 2022 to record a year-to-date turnover of KSh128.4 million driven by increased appetite from retail investors capitalizing on price movements of listed companies.
