Kenya has finalized plans to launch the derivatives markets in July, officials said on Wednesday.
Rufus Kariuki, manager of derivatives in the Nairobi Securities Exchange (NSE), told journalists in Nairobi that the contracts to be traded will be based on the NSE 25 Index as well as seven blue chip stocks.
“We also have in place two banks that will act as clearing houses for settling trading accounts and confirming trades in real time,” Kariuki said.
Derivatives are financial instruments whose characteristics and value depend upon the characteristics and value of an underlying asset which is typically a commodity, bond, equity or currency.
In May, the Capital Markets Authority gave the NSE regulatory approval to launch the Derivatives markets.
Kariuki said that the derivatives will be settled at the end of each trading day to reduce risk of default by investors.
He noted that there is demand for the product in Kenya because it will enable investors to buy or sell derivatives to manage the risk associated with the underlying security, to protect against fluctuations in value, or to profit from market movements.
In order to operationalize the derivatives markets, the NSE has set aside 130 million shillings (1.27 million U.S. dollars) for the Settlement Guarantee Fund that will insure investors against counter-party default risk.
He added that derivatives markets will help to deepen the capital markets by allowing investors to make returns when the securities markets rise or fall.
He revealed that the trading fees for single stock futures will be 0.17 percent, while fees for index futures will be 0.14 percent on the value traded compared to the trading fees on shares which range between 1 and 2 percent.