Derivatives market to diversify capital market products, trading
FINANCIAL Securities Exchange (FINSEC) says its recent launch of the Derivatives Market brings a significant impact on modern finance, while diversifying capital market products and trading.
The derivatives market refers to the financial market for financial instruments such as futures contracts or options that are based on the values of their underlying assets.
FINSEC’S launch of the first-ever derivatives trading platform in Zimbabwe last week on Wednesday follows the recent gazetting of Statutory Instrument 70 of 2022 as well as approval of the Derivatives Rules earlier. The trading commenced last Thursday in what should further widen investment options in the country.
Speaking on FINSEC Derivatives Market: Index Futures Masterclass, in an online webinar on Friday, FINSEC product manager Ms Tinaishe Chikwature said the market was a two-way auction.
“The new way of trading is upon us, a Derivates Market is a public marketplace where equities, currencies, interest rates, index and commodities are contracted for purchase or sale at an agreed price for delivery at a specified date. The market is a two-way auction. A twoway auction is made possible because trading is organised and one deals with standardised contractual agreements only,” said Ms Chikwature.
She said in addition to cash and physical settlement, warehouse receipts or warrants may be used as a delivery mechanism thereby enabling warehouses to be used as commodity delivery centres.
Ms Chikwature said on the Derivates Market prices are determined solely by supply and demand conditions and if there are more buyers than there are sellers, prices will go up and vice versa.
She added: “To reduce counter-party risk all members of an exchange are required to clear their trades through the clearing house. On the Derivates Market futures provide a means to hedge against unpredictable price changes. Speculators assume the risks that are hedged in the futures market thereby carrying the hedging load.”
Meanwhile, speaking at the virtual launch of the derivatives trading platform last week Wednesday, FINSEC chief executive officer (CEO) Mr Collen Tapfumaneyi said: “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.”
He said the platform will enable trading by retail investors of index futures, stock futures and stock options listed on the FINSEC derivatives market.
The market will be on a six-month trial window to enable market participants and investors to familiarise with the newly established market. During the pilot window, institutional investors will be subject to maximum position limits of $3 000 000 and retail investors to $100 000.
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