Money Markets
NSE chief executive officer Geoffrey Odundo. PHOTO | FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
Trading in derivatives at the Nairobi Securities
Exchange will kick off in the first week of March, chief executive
officer Geoffrey Odundo has said.
Derivatives are financial instruments that investors use to
hedge against risk and consist of futures, options, swaps and forward
contracts.
They allow investors to bet on the direction of the
price movement of shares, market indices, commodities and bonds, create
insurance against possible future losses while leaving the investor
free to enjoy the potential gains of their investments.
“We are now finalising on the contracts to bring to
the market, doing final system tests and putting in place a consultant
to provide support so that we achieve the rollout in a structured way.
We are ready and should be hitting the market in early March,” Mr Odundo
told the Business Daily.
The NSE plans to start with index, single stock and
currency futures in its market, which is modelled on the Johannesburg
Stock Exchange (JSE) Derivatives Market.
Market experts have championed a phased approach in
the introduction of the new products given that many investors are
unfamiliar with the different types of derivative and futures products,
which are only common in bigger bourses across the world.
The index contract will be based on the NSE 25
index, which was chosen because it is market cap weighted as opposed to
the NSE 20 Share Index which is price weighted.
The currency contract will be on the shilling-US
dollar pairing, which is predominantly exchanged in over the counter
markets given the dollar’s position as the main medium of foreign trade.
According to Mr Odundo, the currency hedging will
be targeting importers who have borne the brunt of a weakening shilling
on their purchases, as well as the government.
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