The Nairobi Securities Exchange (NSE) has received approval to undertake a Pilot Phase Test for the Derivatives Market within the next six months.
In a statement, the exchange says the authority was satisfied that it had fulfilled the requirements with respect to the derivatives markets regulations.
“The approval will enable the Exchange to commence a Pilot Phase Test of the Derivatives Market, which will be restricted to select market participants and a select product category It will focus on Equity Indexes and selected Single Stock Derivatives. The overarching aim of the pilot phase, is to test the functionality and process of end to end transactions in a live environment.”
Additionally, the Central Bank of Kenya (CBK) has granted a provisional approval to the Stanbic Bank of Kenya and the Co-operative Bank of Kenya to participate as clearing and settlement members during the pilot testing phase.
NSE Chief Executive, Mr.Geoffrey Odundo noted “The Exchange…… looks forward to a successful completion of the pilot phase which will inform stakeholders and regulators decisions on the offical roll out of the Derivatives Market.”
According to the balance.com, a derivative is a financial contract that derives its value from an underlying asset. The buyer agrees to purchase the asset on a specific date at a specific price.
Derivatives are often used for commodities, such as oil, gasoline, or gold. There are derivatives based on stocks or bonds. The contract’s seller doesn’t have to own the underlying asset. He can fulfill the contract by giving the buyer enough money to buy the asset at the prevailing price. He can also give the buyer another derivative contract that offsets the value of the first. This makes derivatives much easier to trade than the asset itself.