•NSE will offer futures contract on quarterly basis, with the trading expected to boost liquidity by offering a new avenue to capital and hold on to selling investors when returns fall.
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Nairobi Stock Exchange will launch the derivatives market on July 4 and will offer futures contract on a quarterly basis.
Derivatives refers to financial instruments whose value depend on an underlying asset which could be a commodity, bond, equity or currency.
According to equity derivatives specialist at NSE, Geoffrey Radier, it will offer two-kind dimensional market, protecting the investors against fluctuations in value and even sometimes make profit from decline in share price.
“In this way, it will act as risk management on securities for sellers mostly institutions and fund managers looking for an offsetting solution,” Radier said.
The derivative market will also bring retail investors to the exchange.
The contracts will expire on every third Thursday of three months will apply to listed companies under NSE 25 index futures and single stock futures.
Those that will be available in the market next month include Safaricom, KCB, Equity, KenGen, Bamburi Cement, British American Tobacco and East Africa Breweries Limited.
This comes as investors await inclusion of agricultural produce under the awaited Kenya National Multi Commodities Exchange (Komex) expected to be ready by December.
However, according to business development manager on derivatives at NSE, Rufus Gitau, trading of those commodities will take sometime.
“There will be need to develop a structure with need for standardised specifications to determine the value either by grade or area of produce,” Gitau said.
Stanbic Bank and Co-operative Bank have so far been licensed by Central Bank of Kenya for clearing and settling the exchanges done by the brokers or investment banks.
Others expected to join include Barclays Bank, CBA and NIC Bank after NSE sent invitations.
The banks will however have to contribute to the Sh130 million settlement guarantee fund, dependent on volume trading through the institutions. This will be in addition to capital deposited into the Fund by NSE.
The institutions will also top up a minimum of Sh23.5 million to the fund, out of which half will be paid in cash and the other half as guarantee, in order to stabilise the market and protect investors in case of default by the bank.
NSE will also contribute more than 13 million to an investor protection fund, in addition to agreed amounts from brokers.
Radier added that the market will benefit investors with small amounts in a faster and cheaper way, exposed to same instruments.
The clients will pay 0.17 per cent for single stock futures and 0.14 per cent for index futures depending to value traded. This is as trading fees on shares ranging from one per cent to two per cent.
Repayments to investors will be made daily to minimise settlement risks.
The derivative market will make NSE the second exchange to offer traded derivatives in Africa, after Johannesburg Stock Exchange.