The Capital Market Authority has given the Nairobi Securities Exchange an approval that allows it to undertake a pilot phase test for the derivatives market within the next six months. This came after the CMA was satisfied that the NSE had fulfilled all the requirements in respect to the derivative markets regulations.
According to the NSE, a derivative is a financial instrument between two parties based upon the assets. Its price is determined by fluctuations in the underlying asset (which includes stocks and market indexes). However, derivatives are usually used for commodities such as oil, gasoline, or gold.
The pilot phase test will be restricted to select market participants and a select product category. In addition, the test will focus on equity indexes and selected single stock derivatives. This is in line with the objective of the pilot phase, which is to test the functionality and the process of end-to-end transactions in a live environment.
In accordance with its mandate, the Central Bank of Kenya also granted provisional approvals to the Co-operative Bank of Kenya and the Stanbic Bank of Kenya to act as clearing and settlement members during the pilot-testing phase.
During the announcement, Mr. Geoffrey Odundo, NSE chief executive, said that he looked forward to the successful completion of the pilot phase, as it would inform shareholders and regulator’s decision on the official roll out of the derivative markets.
“The establishment of a globally competitive derivatives market is in line with the NSE’s 2015 – 2019 strategic plan, which aims to increase listings in the exchange while enhancing product innovation. The derivatives market will further enable trading and clearing of multi-asset classes, while providing our investors with an opportunity to further diversify their portfolios,” he added. .