The first Derivatives Market in East Africa and number two in Africa has started trading at the Nairobi Securities Exchange. The derivatives market will enable investors to diversify their investments, manage risk, and deploy funds more efficiently. Besides the many benefits to traders, the platform will position Kenya as a leading financial hub and therefore attract additional international investors.
What you need to know about the NSE Derivatives Market (NEXT)
The Market will consist of a Clearinghouse, Clearing members (Banks and Financial Institutions licensed by CBK), Trading members (Brokers and Investment Banks), and Clients (Institutional and Individual Investors, Speculators, Hedgers, and Arbitrageurs).
The Nairobi based derivatives market will initially offer single stock futures and Index futures. Clients will able to trade futures on 5 NSE listed stocks namely; Safaricom, KCB Group, Equity Group, EABL, BAT and futures on the NSE25 Share Index. The trading fee for single stock futures is 0.17% of the value of trade while for index futures is 0.14%.
For the NSE25 Share Index futures, one index point will equate to KSh100. On the other hand, for the single stocks trading below KSh100, like Safaricom shares, one futures contract will represent 1000 underlying shares. For stocks trading above KSh100, like BAT shares, one futures contract will represent 100 underlying shares.
All futures contracts at the NSE will be settled using cash in these early stages of trading. The contracts will expire every three months, on the third Thursday of March, June, September, and December.
Investors need not worry about the safety of their investments on the platform. The Exchange has taken steps to safeguard clients’ interest by establishing the Settlement Guarantee Fund and the Investor Protection Fund. The SGF will be used to meet payments for transactions on the exchange while the IPF will settle claims by investors in case the trading members fail to meet their obligation.
The NSE derivatives Market goes live today. Its official launch will be on 11th July 2019.