Kenya's Stock Exchange delays launch of derivatives market

Jul 31, 2015

It said the delay was necessary "to adequately prepare the market".

Kenya's Nairobi Securities Exchange (NSE) has announced it is delaying the roll out of a derivatives market, Reuters reports.

The NSE plans to offer derivative instruments that hedge against risk on the market, in a bid to boost liquidity. This will be the second bourse in Sub Sahara Africa to do so after the Johannesburg Stock Exchange.

Originally planned for the second quarter of the year, the launch is now pushed back to the Q3 2015.

The NSE said that progress had been made towards the setting up of the market, including the establishment of a clearing house, a guarantee fund and an oversight committee made up of industry professionals.

However, it stressed the delay was necessary "to adequately prepare the market", adding that "it is imperative that prior to launch of this product, the market understands clearly the positive impact of derivatives as tools to manage investment risk."

Derivative instruments are linked to the risks inherent to trading shares and bonds on the stock exchange.

Analysts quoted by Business Daily have warned that introducing such complex instruments could pose some risks to the stock exchange, drawing from examples of the global financial crisis of 2008-2009, when the collapse of several large banks was linked to exposure to mortgage backed derivatives.