FINSEC pioneers derivatives in Zim

Financial Securities Exchange (FINSEC), launched the first ever derivatives trading platform in Zimbabwe on Wednesday while trading commenced yesterday in what should further widen investment options for investors in the country.

Registrations for the tradable security began on Wednesday with the pilot trading going for six months as a trial period.

Speaking at the virtual launch, FINSEC chief executive officer Collen Tapfumaneyi said, “The new way of trading is upon us, and this is the step in the right direction as it gives retail investors and other investors the opportunity to move into more trading instruments rather than equities alone.”

This will enable trading by retail investors of index futures, stock futures and stock options listed on the FINSEC derivatives market. “This is meant to widen opportunities for investors to diversify their portfolios and offer them risk management tools in line with global trends,” Mr Tapfumaneyi

A derivative is an agreement between traders for selling or buying of shares, commodities and currency in future at a price agreed today hence little or no investment is needed to enter into such a contract.

The contract gives the right to buy or sell the securities on previously agreed price irrespective of the price of the same in the spot market.

The value of this contractual agreement changes with the price movement of the mentioned security in the spot market.

Derivatives are used to reduce the exposure of risk (hedging) and assist in countering financial risks associated with fluctuation of price, interest rate and currency exchange rate. They also protect sellers from loss due to price fluctuation which is a price downfall.They are also meant to provide a platform to speculate and make a profit for those who are ready to take risks. Above all financial derivatives transfer risks from those who want to avoid it to those who are ready to accept it.

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The Securities and Exchange Commission of Zimbabwe (SecZim) acting chief executive officer, Gerald Dzangare said, “The launch of Derivatives Market by FINSEC is indeed a welcome step as the country progresses towards matching international standards in the issuing, listing, trading and settlement of diversified securities for the benefit or both retail and institutional, local and foreign investors.”

According to the regulator, the coming in of this new product is evidence that Zimbabwe is ready for innovative products through the continued diversification of capital markets from just equities and fixed income instruments.

Mr Dzangare said; “The Government of Zimbabwe is working on making the country investor friendly and the capital markets must consciously do its part by having products and services that speak to the needs and expectations of investors from across the globe.”

SecZim challenged FINSEC and other capital market participants to continue profering innovation that broadens the country’s markets and gravitates Zimbabwe towards becoming an investment destination of choice.

“This can only be possible if we all embrace innovation, cooperation and development as key drivers of our markets,” Dzangare added.

The market will be on a 6-month trial window to enable market participants and investors to familiarise with the newly established market. During the pilot window, retail investors will be subject to maximum position limits of $100 000.

Derivative instruments that will be available for trading will be Simbisa Stock Futures, Econet Wireless Stock Futures, Innscor Stock Futures, Delta Stock Futures and Ecocash Stock Futures.

Stock Options will include Delta Stock Options, Ecocash Stock Options, Simbisa Stock Options, Econet Wireless Stock Options and Innscor Stock Options. For Index Funds FINSEC partnered with Morgan and Co. for the creation of the indices.

Mr Tapfumaneyi said, “The companies selected here were based on how liquid they were, as we felt it was a critical factor in the drive to have working derivatives.”

Nairobi Securities Exchange (NSE) chief executive, Geoffrey Odundo who was the guest of honour at the launch reiterated that there is need for market flexibility in order to produce more products for investors.

Mr Odundo said, “For the market to work efficiently and effectively, there will be need for significant support from both trading participants and the regulators. Trading participants are the main client touch points and need to market the products to clients.

“There will be a great need for the market to adapt to investor needs. The NSE recently introduced a mini-index in response to market and investor needs.

“Exchange traded products exist to minimize the risk of trading in unregulated Derivatives products. The market should be very keen to ensure no default risks arise to maintain the integrity of the market.”

FINSEC said technology capacitated securities dealers and other market intermediaries to harvest deal traffic from various channels in real-time and to interface using intelligent and versatile world standard technology.

FINSEC board chair Rachel Kupara said, “It connects all licensed securities dealers in Zimbabwe, enabling them to collect as well as post sell and purchase orders on an open board thereby allowing for automated real-time multilateral price discovery in the trading of various types of financial securities/instruments.-The Herald