Factors hindering derivatives trading at the Nairobi Stock Exchange
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Date
2010-11Author
Mutende, Evans A
Type
ThesisLanguage
enMetadata
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As from early 2000s, the Nairobi Stock Exchange (NSE) and the market regulator
Capital Markets Authority (CMA) endeavored to reform the market. As part of the
market reforms agenda, the Authority initiated market reforms in 2001 which led to
the reorganization of the NSE into four distinct segments: the Main Investments
Market Segment (MIMS); Alternative Investments Market Segment (AIMS); Fixed
Income Securities Market Segment (FISMS); and the Futures and Options Market
Segment (FOMS). To date all but the FOMS remain active. The derivatives market in
Africa and specifically the NSE remains underdeveloped. One of the major
hindrances to the derivatives market development, which is the focus of this paper, is
the regulatory and policy environment. There is need to develop these so as to provide
a framework within which the market can operate effectively and efficiently. Other
disabling factors to the development of the derivatives market discussed in this paper
includes; the level of investor sophistication and awareness is low; lack of
commodities on large scale; high frictional costs in the market structure; inadequate
risk management; inadequate liquidity; and segmented regulation.
The study further explores the efforts being done by the NSE and the CMA towards
the development of the market. This includes the findings of the study undertaken by
the CMA on the viability of establishing a futures and options market segment at the
NSE. To help understand the factors hindering derivatives market development; in
this concept paper, I have explained key concepts relating to derivatives market
development and the various types of derivatives. The benefits and uses of derivatives
and their down side/ disadvantages have also been highlighted, drawing from real life
experiences across the globe. An overview of studies on derivatives and derivative
markets in Latin America, India, South Africa, Asia and Kenya has been discussed.
Citation
MBA ThesisSponsorhip
University of NairobiPublisher
School of Business, University of Nairobi