The Nairobi Securities Exchange (NSE) is set to expand its derivatives market with the introduction of options derivatives trading on its NEXT platform. The move follows approval from the Capital Markets Authority (CMA) and marks a significant milestone in Kenya’s financial sector, aimed at providing investors with more diversified investment products.
The NSE said in a statement on Friday that the new options derivatives will complement its existing futures contracts and help to broaden the range of financial instruments available for trading in Kenya. The addition of options is expected to enhance investor participation in the local market by giving investors more tools for hedging and speculation.
Options are financial contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before or on a specified date. These contracts are typically used to hedge risks or to speculate on the price movements of assets such as stocks or indices.
According to the NSE, investors will initially be able to trade options on the exchange’s existing futures contracts for single stocks and indices. This will give investors the opportunity to enhance their risk management strategies while tapping into potential returns on Kenya’s relatively young derivatives market, which first launched in 2019.
Frank Mwiti, Chief Executive Officer of the NSE, welcomed the development, saying, “The NSE is delighted to receive approval to launch options on futures contracts on the NSE. The introduction will provide investors with new instruments to support efficient capital deployment whilst offering advanced risk management tools enabling hedge against adverse price movements in the underlying contracts.”
Mwiti emphasized that the introduction of Options will provide investors with advanced tools for efficient capital management and risk mitigation. To support the rollout, NSE will conduct investor education and additional tests with clearing and trading members, ensuring robust risk management. This expansion aligns with NSE’s goal of building a world-class market infrastructure, enhancing investor trust and catering to evolving market needs.
The proposed introduction is designed to meet growing market demand and is equally in line with our commitment to build a world class market infrastructure anchored on a wide array of investment products that meet current and future investor’s needs ” he added.
The launch of options derivatives comes in response to growing market demand for more sophisticated financial instruments. Market analysts have noted that investors are increasingly seeking tools to better manage risk and enhance their portfolios, particularly as Kenya’s financial market matures.
Market participants have also expressed optimism that the introduction of options will deepen liquidity on the exchange, attracting more institutional investors both locally and internationally. The move is seen as part of a broader effort by the NSE to position itself as a leading financial hub in East Africa.
The introduction of options derivatives is expected to attract a wider range of market participants, including institutional investors such as pension funds and insurance companies, which typically use derivatives to hedge against risks and improve portfolio returns.
While the NSE has faced challenges in deepening market participation in its derivatives segment, the addition of options derivatives is expected to provide a much-needed boost.
NSE futures contracts, which have been available since the launch of the derivatives market in 2019, have seen limited uptake. However, with the launch of options, the NSE is optimistic about increasing both trading volumes and market liquidity.
As Kenya’s financial markets continue to evolve, the NSE remains focused on broadening its product range to stay competitive with other regional exchanges. The exchange’s long-term strategy includes not only expanding its derivatives market but also attracting new listings and increasing overall market capitalization.
Do you have any story or press releases you want to share? Send tips to editor@envestreetfinancial.com
Follow us on Twitter, Facebook, or LinkedIn to ensure you don’t miss out on any