Sterling Capital, SIB top derivatives market on bourse

Data from the NSE show that Sterling Capital traded contracts worth Sh940,000 with Standard Bank closing deals worth Sh427,417 from the first day of trading on July 4 to July 15.

The derivatives market offers index futures and single stock futures of the most heavily traded companies on the bourse. KCB, Equity Bank, East Africa Breweries Limited and Safaricom were the shares whose futures contracts were sold in the period under review amounting to Sh2.4 million.

Under the futures market, investors pay a deposit of between eight and 12 per cent of the value of shares attached to a contract and bet on whether the share will rise or fall in coming weeks. If they bet a share will rise and the price increases, they get refunded their deposit and a margin of the rise in the shares attached to their contracts.

For those who bet the stock would fall and it increases they lose the margin equivalent to their bet price and the appreciated stock price, which is normally recovered from the deposit. Similar trading will be done on the NSE-25 share index where a single point is equivalent to Sh100.

Standard handled five contracts while Sterling did three including one on the market index.

Other brokers who handled smaller contracts are Kingdom Securities, Genghis and AIB Capital.

Listed futures will have quarterly expiry dates. Market participants said the futures contracts will allow investors to diversify their portfolios and deploy capital more efficiently because they require just to pay a deposit and benefit from share price gains rather than outright stock purchases.

The NSE is the second exchange in Sub-Sahara after Johannesburg to launch trading in derivatives. Known as the Next Derivatives Market, it will offer investors index futures contracts on the NSE-25 share index and single stock futures on Safaricom, KCB, Equity, EABL and BAT — the most heavily traded and well capitalised stocks on the NSE.