The Nairobi Securities Exchange (NSE) on Thursday, 11 July 2019, launched the NEXT Derivatives Market, making it the second African Exchange after South Africa to launch a Derivatives Market.
The launch follows a successful six-month pilot phase conducted to test the functionality of end to end transactions of futures contracts in a live environment.
The NSE defines derivative as a financial instrument whose characteristic and value of the underlying asset is typically a commodity, bond equity or currency.
Whereas the issuer receives cash for financing projects for the case of securities such as bonds and equities, the that is not so in the case of derivatives.
Following the launch, the NSE will now offer Index Futures and Single Stock Futures on selected indices and stocks respectively.
The Exchange will initially offer index futures contracts on the NSE 25 Share Index and Single Stock Futures on Safaricom Plc, Kenya Commercial Bank Group Plc, Equity Group Holdings Plc, East African Breweries Ltd, and British American Tobacco Plc.
Futures contracts listed on the NSE will have quarterly expiry dates; this will be the third Thursday of March, June, September and December of every year. All NEXT futures contracts will be initially cash settled.
NSE seeks to diversify investments products and to offer investors with a wide array of financial instruments for short-and-long-term investments’ needs.
“The newly launched NEXT Derivatives Market will enhance investors portfolio performance by availing risk management tools in the wake of increasing asset price volatility in both domestic and international markets,” said NSE CEO Geoffrey Odundo.
Speaking during the launch ceremony in Nairobi, Sam Kimani, Chairman, NSE noted that, “a globally competitive Derivatives Market is an acknowledgement of NSE’s commitment and ability to meet its strategic priorities as well as complement its existing product offering and create a diversified market for local and international investors”.
According to NSE, NEXT Derivatives Market will also enable Kenya to consolidate its position as a leading financial services hub in Africa.