Investors are keen on new developments at the Nairobi Securities Exchange (NSE) as the market opens its counters for derivatives trading.
The NSE Derivatives Market (NEXT) futures start trading today with the official launch of the market slated for Thursday, July 11, 2019.
“NEXT provides new opportunities to investors, enabling them to better diversify their portfolios, manage risk, and deploy capital more efficiently,” NSE Chief Executive Geoffrey Odundo said.
Futures contracts provide investors with risk management tools in the wake of unexpected volatility in asset prices.
NEXT will also enable Kenya to consolidate its position as a leading financial services hub offering a wide variety of investments products.
The NEXT will commence with index futures and single stock futures on selected indices and stocks respectively, the bourse’s management said.
The Exchange will initially offer index futures contracts on the NSE25 Share Index and single futures on Safaricom Plc, Kenya Commercial Bank Group Plc, Equity Group Holdings Plc, KenGen Co. Plc, East African Breweries Ltd, British American Tobacco Kenya Plc and Bamburi Cement Ltd.
The above single stock futures have been selected based on a number of aspects.
One, the security underlying the futures contract must be a listed instrument on the Nairobi Securities Exchange.
Second, the security underlying the futures contract shall be chosen from amongst the constituents of the NSE 25 Share Index and third, the security underlying the futures contract must demonstrate a minimum average daily turnover of Ksh7 million (US$68,401 ) over the last six months before review.
Finally, the security underlying the futures contract must have a market capitalization of at least Ksh50 billion (US$488.9million).
All futures contracts listed on NEXT 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 initially be cash settled.
In line with global practice in safeguarding market infrastructure and investor interests, the Exchange has also established the Settlement Guarantee Fund (SGF) and the Investor Protection Fund (IPF).
The main purpose of the SGF is to settle specified claims by derivatives members arising out of transactions in derivative securities while the main purpose of the IPF is to satisfy specified claims by the investing public arising out of non settlement of obligations owed to them by trading members or losses incurred by reason of the default of trading members.