The Nairobi Securities Exchange (NSE) has announced plans to launch options derivatives trading on NEXT, its derivatives market, following approval from the Capital Markets Authority (CMA). The move is designed to provide a wider array of financial instruments, supporting investors in Kenya with more diverse opportunities for returns and risk management.
Options are financial contracts that give buyers the right, but not the obligation, to buy or sell an asset at a pre-agreed price within a specified time frame. Investors will be able to trade options on existing NSE futures contracts for single stocks and indices, enhancing their ability to hedge against adverse market movements. This marks a significant step towards developing Kenya’s derivatives market, which has been growing steadily over the past few years.
Frank Mwiti, Chief Executive Officer of NSE, expressed enthusiasm about the development: *“The NSE is delighted to receive approval to launch options on futures contracts on the NSE. The introduction will provide investors new instruments to support efficient capital deployment whilst offering advanced risk management tools.”* Mwiti emphasized that the inclusion of options derivatives will enhance market depth and appeal to a broader range of participants.
In preparation for the introduction of these new contracts, the NSE plans to conduct extensive investor education and additional trading and settlement tests to ensure operational efficiency. The exchange will also implement various risk management controls to ensure the market maintains a high level of trust from both investors and trading members. Mwiti reassured stakeholders, stating, *“The NSE will monitor various risk management controls to limit potential defaults, thus ensuring the derivatives market continues to attract high levels of trust.”*
The new options contracts will be cash-settled using the existing infrastructure of NSE Clear, supported by the network of clearing and trading members.
