NSE to start offering ETFs in diversification drive

Nairobi Securities Exchange expects its first exchange traded fund (ETF) to be approved by the regulator this year and trading to start soon after.

The exchange’s chief executive Geoffrey Odundo told Reuters it had been investing in new infrastructure to allow the trading of new products, like the ETF, as it diversifies from equities and bond trading.

Earlier this month, NSE issued a profit warning for the year after a fall in share trading.

“Almost 95 percent of all product development is complete. We are at a very imminent phase of launching very many products. We are looking at ETFs coming into play,” he said at a meeting of African bourse chiefs in the Rwandan capital.

A foreign company, which he did not identify, had applied to the capital markets regulator for permission to offer a commodities-based ETF for trading on the NSE.

“It will be a first for the NSE,” he said.

ETFs are securities traded on exchanges that can allow investors to hedge their risk, as they are based on underlying assets like commodities or a basket of stocks.

The NSE has also been laying the groundwork for a derivatives market that Odundo said will start operating soon.

Like other exchanges in Sub-Saharan Africa, the NSE struggles with poor liquidity and the Capital Markets Authority (CMA) regulator has published proposed guidelines to allow funds to trade on borrowed securities in the market to address this.

“Investors will now be able to lend securities to another party, who can then trade on them depending on their view of the market and then be able to give them back,” Odundo said.

Local pension funds usually hold shares in top firms listed on the bourse, leaving other market participants starved of a supply of the shares, thus stifling liquidity.

The new guidelines on stock lending and borrowing will eliminate that problem.

“There is urgency and I suspect in the first quarter of next year we should have those regulations up,” he said.