The Securities and Exchange Commission has said the development of an efficient derivatives trading market is one of its top priorities in 2020.
Derivatives are securities that derive their value from an underlying security or asset.
The acting Director-General, SEC, Ms Mary Uduk, while speaking during an interview, described derivatives as some of the investable products capable of boosting liquidity in the capital market.
According to her, derivatives are traded in all the big markets around the world and are used in risk management. They are also used to hedge the trade in other securities.
Uduk said she believed this was a good time to have derivatives in the capital market.
She said though they were currently being traded in the capital markets, it was only over the counter.
She said, “Now, we want to introduce exchange traded derivatives so that people can now hedge their positions in the market. The number one advantage apart from the risk management one is that it gives traders and investors more instruments to invest in
“The OTC transactions are just between one party and the other. So, the two counterparties meet, agree and design contracts as it suits them. Most of the time, these are contracts done between knowledgeable parties and they are able to protect themselves.
“But for the exchange traded derivatives, the commission has in place a very robust risk management framework and that is why it has rolled out these rules.”
Uduk said the rules, in addition to the registration requirements, covered the derivatives contract and the participants in the derivatives market.
She added that they specified the risk management framework that SEC expected every participant in the derivatives market to have.
She said on all counts, the commission made a lot of strides in implementing some of the initiatives of the 10-year capital market master plan in 2019.
The SEC boss added that in 2020, the commission would continue a few other things such as derivatives trading and strengthen the stockbroking segment of the market.