Nairobi bourse postpones derivatives market launch

KENYA: The Nairobi Securities Exchange (NSE) has delayed commencement of trading in derivatives, which enables investors to hedge against risk, to this quarter from the earlier target date of the second quarter to adequately prepare the market for the launch, it said Wednesday.

The bourse plans to offer derivative instruments, becoming the second exchange in sub-Saharan Africa to do so after Johannesburg, in a bid to boost liquidity. "The launch has been deferred slightly. We are targeting this quarter," the bourse said.

"It is imperative that prior to launch of this product, the market understands clearly the positive impact of derivatives as tools to manage investment risk," it said.

Progress had been made towards the setting up of the market, the NSE said, citing the establishment of a clearing house, a guarantee fund and an oversight committee made up of industry professionals. NSE wants to become the third biggest exchange on the continent, up from fifth currently, its Chief Executive, Geoffrey Odundo told Reuters in March.

The bourse serves as an entry point for foreign funds looking to tap into fast economic growth rates in east Africa but it currently ranks behind South Africa, Nigeria, Egypt and Morocco in terms of market size.

The NSE, which received the regulatory green light to unveil the derivatives exchange in December last year, says it is "building an understanding" of what derivatives are and what they will do for Kenya.

The bourse has been training trading personnel, asset managers, bankers, risk managers and operations team on how the new exchange works. The process of setting up the NSE Derivatives Settlement Guarantee Fund and the NSE Derivatives Market Investor Protection Fund is also ongoing.

CAPITAL MARKETS

The derivatives market enables investors to diversify their investments from current products in the capital markets and hedge against risk. Analysts say the derivatives market can help investors make a predictable assessment of risk and returns on their investments in comparison to trading, say in shares, on the securities exchange.

The derivatives market is considered one of the most affordable and convenient means for investors to cushion themselves against interest-rate fluctuations, volatility in exchange rates and seesawing of commodity prices.