The Nairobi Securities Exchange (NSE) continues to spearhead financial market innovation with the introduction of Single Stock Futures on the NSE Derivatives Market, known as NEXT. These derivative instruments offer investors exposure to price movements on an individual stock, providing a myriad of opportunities for market participants.
Let’s delve into the specifics of NEXT Single Stock Futures, exploring their features, benefits, and the transformative impact they bring to the Kenyan financial landscape.
Understanding Single Stock Futures:
- Definition:
- NEXT Single Stock Futures are derivative instruments where parties agree to exchange a specified number of stocks in a company at a price agreed today (the futures price). These contracts are initially cash settled.
- Underlying Financial Instrument:
- Single stock listed on the NSE, such as Equity Group Holdings Plc. (EQTY).
- Contract Details:
- Contract months: Quarterly (March, June, September, and December).
- Expiry dates: Third Thursday of the expiry month.
- Expiry times: 15H00 Kenyan time.
- Listing program: Quarterly.
Contract Size and Price Movement:
- Contract Size:
- For shares trading below KES 100: One contract equals 1,000 underlying shares.
- For shares trading above KES 100: One contract equals 100 underlying shares.
- Minimum Price Movement (Quote Spread):
- Price Range Tick Size (KES)
- Below 100.00: 0.01
- ≥ 100.00 < 500.00: 0.05
- ≥ 500.00: 0.25
- Price Range Tick Size (KES)
Trading and Fees:
- Market Trading Times:
- As determined by the NSE, 09H30 to 15H00 Kenyan time.
- Market Fees (Percentage):
- NSE Clear (0.025%), Clearing Member (0.025%), Trading Member (0.10%), IPF Levy (0.01%), CMA Fee (0.01%).
Benefits of Trading NEXT Single Stock Futures:
- Effective Hedge:
- NEXT Single Stock Futures provide an effective and transparent hedge against unfavorable share price movements. Investors can use these instruments to manage and mitigate risks associated with individual stock holdings.
- Liquidity and Ease of Trade:
- These futures contracts are liquid and easy to trade instruments, offering market participants flexibility and efficiency in executing their trading strategies.
- Profit Opportunities:
- Positions in single stock futures allow investors to benefit from both downwards and upwards movements of share prices. This versatility empowers investors to capitalize on various market scenarios.
- Exposure Without Ownership:
- Investors can gain exposure to share price movements without owning the underlying shares. This allows for strategic positioning in the market without the need for direct ownership.
In conclusion, the introduction of Single Stock Futures on NEXT marks a significant stride in the evolution of the Kenyan financial market. These derivatives bring a new dimension to risk management, trading strategies, and investment opportunities.
As market participants embrace the transformative power of NEXT Single Stock Futures, the NSE solidifies its position as a pioneer in fostering innovation and resilience in the dynamic landscape of financial markets.
