Kenya’s Nairobi Securities Exchange (NSE) said Friday it has received a provisional license to establish and operate a derivatives exchange.
NSE chairman Eddy Njoroge said the regulatory approval, granted by the Capital Market Authority (CMA), enables the bourse to achieve its strategic plan which seeks to enhance new listings and diversification of products in order to take advantage of new growth opportunities in the market.
“Derivatives are among the most affordable and convenient means companies can cushion themselves against interest rates fluctuations, exchange rate volatility and commodity prices,” Njoroge said in a statement issued in Nairobi.
He said the derivatives also boost liquidity in the underlying assets, adding that it’s also a step towards growing the NSE brand and shareholder value.
The Derivatives Market is the financial market of instruments like futures contracts or options.
It is named “derivatives” because the value of these instruments is derived from another asset class, such as stock, physical commodity, index, among others.
NSE, which currently trades stocks and bonds, is increasing the variety of securities on offer as the industry regulator seeks to boost growth of the country’s capital markets to make Nairobi the financial services hub of East Africa.
NSE Acting Chief Executive Andrew Wachira said NSE will now establish a globally competitive Derivatives Exchange that will enable spot and futures trading of multi-asset classes, including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts.
“The Exchange has invested in the development of the Derivatives Market to ensure that it will meet global standards including mechanisms for trading, clearing and settlement of the instruments traded,” Wachira said.
He said the bourse will now undertake to prepare product and contract specifications, and conduct public education and stakeholder engagement in preparation of the Derivatives Market launch. NSE’s Derivatives Market is modeled from the Johannesburg Stock Exchange (JSE) Derivatives Market, which offers trading of a variety of Derivatives, including futures and options on requites, bonds, indices, interest rates, currencies and commodities.