Nairobi Securities Exchange set for actual derivative test

An employee makes notes in front of an electronic stock information screen inside the Nairobi Securities Exchange Ltd. (NSE), in Nairobi, Kenya, on Tuesday, Dec. 8, 2015. The government had planned to plug the 2016-17 fiscal deficit with about 240 billion shillings of external borrowing, and about the same amount raised on the domestic debt market. [Photographer: Riccardo Gangale/Bloomberg]

The Nairobi Securities Exchange (NSE) will start testing the trading of shares of three major firms on the derivatives market next week.

The firms whose shares will debut on the market segment are Safaricom, Kenya Commercial Bank and Equity Bank. A derivative contract is to sell the value of an underlying asset with an agreement to buy it back at a later date.

Under the contract, an investor only needs 10 per cent value of a stock to make a position by buying a contract and holding it for three months. NSE will also test a derivative product that tracks the NSE25 index in a revolutionary market that is set to change how the stock market operates.

Terrence Adembesa, the derivatives market director, said that in July the NSE tested the stocks and index in a dry run that involved virtual currency. Now the exchange is ready for a real market test after which the product will be launched next year.

 “We had six months within which we could do the tests and we are now launching a test that will use real money and hopefully go live next year,” said Mr Adembesa. In the test run, Equity Bank outperformed its peers as the most traded derivative followed by Safaricom.