The Nairobi Securities Exchange (NSE) has anchored Kenya as East Africa’s financial hub, deepening and diversifying it’s product offering over the years. With the launch of the derivatives market, the bourse has come of age, so to speak, and investors have another avenue to secure returns for investment.
The derivatives segment, also known as futures market, will now enable NSE participants to shape prices of securities or stocks by predicting their value at a future date. The icing on the cake is that payments of buy-and-sell agreements will be made on a daily basis. NSE will in this new speculative market allow investors depositing 10 per cent of the value of a stock to bet on future price movements of the same.
For shares trading below Sh100, investors will get 1,000 shares for a single deal while for those trading above Sh100 one will get 100 shares. Known as an exchange-traded derivative, the new segment is expected to not only increase market activity but also give securities their best possible value in future.
The good thing is that the new segment will woo investors to participate in the hedging business, making Kenya the second country in Africa—after South Africa—and the first one in the frontier market to have a derivatives market.
This will complement existing product offerings and creating a diversified market for both local and international investors, enabling them to better diversify their investment portfolios, manage risk and deploy their funds more efficiently to cushion against unexpected price volatility in asset prices.
The segment definitely makes Kenya’s capital market even more sophisticated compared to peers in the region and continues to play a vital role in economic growth by encouraging investments and savings.
Only last year, Kenya moved to tap the London Stock Exchange (LSE) for dual listing, in a move which could see companies list in both countries, and attract further investment from abroad. The move will enable LSE-listed firms leverage on the Kenyan investor base, which understands the local business terrain on one hand and the investor pool in London which understands international business trends on the other.
With the incubation and acceleration programme dubbed Inuka, NSE has moved to enable small-scale businesses scale up performance including corporate governance. Inuka and the futures market have undoubtedly shored up NES’s profile.
However, more needs to be done. Focus should be on improving market accessibility, clearing systems, removing investment taxes and nurturing a good reputation.