The Nairobi Securities Exchange derivatives market (NEXT) launched on July 4, 2019, with the primary goal of facilitating futures contract trading in the Kenyan market, regulated by the Capital Markets Authority (CMA). NSE identified four key reasons for establishing the NEXT: increased integration of Kenyan financial markets with international markets, rising volatility in asset prices within local and international financial markets, demand for sophisticated risk management tools and straategies and the necessity to expand and deepen Kenyan financial markets.
However, since its inception, the derivatives market in Kenya has faced several challenges:
- Inadequate legislative regulations have created a regulatory environment that lacks clarity and consistency, hindering market development.
- Low investor awareness has resulted in a limited understanding of derivatives and their benefits, leading to lower participation rates.
- High transaction costs, including fees and commissions, have deterred potential investors and traders from entering the market.
- Insufficient risk management practices have exposed market participants to higher levels of financial risk.
- Fragmented regulatory frameworks have led to inconsistencies and gaps in oversight, further complicating market operations and growth.
Now, despite the introduction of Derivatives Single Stock Futures (SSF) trading in July 2019, the market has not achieved the anticipated liquidity. The Master of Commerce students are currently studying Derivatives Markets as part of their coursework and for this semesters, they undertook a study seeking the above-mentioned issue as well as giving evidence-based solutions on how to attract more liquidity in the market. This study saw the students begin trading in the derivatives markets and come up with practical, evidence-based solutions which they would then present to the Nairobi Securities Exchange (NSE) and Capital Markets Authority (CMA).
The study also sought to explore these questions:
- How can Kenyan utilize the Fintech Space to spur derivatives trading as well as the practical uses of technology from both the supply and demand sides?
- What is the current landscape of climate finance and ESG in Kenya and how can they be incorporated in Kenya’s Capital Markets by various stakeholders
- What is the current participation on women, youth, SMEs & PWDs in the Capital Markets? How can these groups and others participate more in the Capital Markets space, in Equities and in the Derivatives Market?
On Wednesday, 31st July 2024, the students had the opportunity to present their findings, challenges and recommendations to Dr. Faith Mwende, Dr. Stephen O. Nyangaga, Justus Ogola and Anthony Kiambati from NSE and CMA respectively. Post the presentations, the representatives from CMA and NSE will receive a comprehensive report from the students with the aim of helping them improve the derivatives markets.
About the Master of Commerce (MCOM) Programme
This Programme is designed for those seeking academic and professional advancement in business science. Specializations include Strategic Management Accounting, Sustainability Accounting, Finance, Marketing, International Business Management, Management Science, and Strategic Management. The Programme equips graduates with critical skills necessary for diverse organizational management roles. September 2024 intake is ongoing! Learn more here
Article by Juliet Hinga
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