Timothy
Enacy Mapakame
Work on the introduction of derivatives has begun in earnest with Financial Securities Exchange Limited (FINSEC), now on the first phase of the project as efforts intensify to increase capital markets products in the country.
FINSEC general manager, Garikayi Munema, said being a new product to the Zimbabwean capital markets, derivatives will be introduced in phases.
The first phase involves preparing the market for the new product through holding master classes with market participants as well as potential investors to equip them on how derivatives work, potential risks as well as how investors can derive value from their investments.
The masterclasses are being done in partnership with the Harare Institute of Technology and support from the Investment Professionals Association of Zimbabwe (IPAZ).
“We are beginning to hold master classes for derivatives. This phase is scheduled for eight weeks, with one class every week. This is to prepare the market ahead of the actual introduction,” he said in an interview. The first is set online for the 23rd of September.
Derivatives are financial instruments that derive their value from an underlying asset such as equities, hard or soft commodities or from a group of assets. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates and market indexes.
According to Investopedia, the common derivatives include options, futures contracts, forwards and swaps.
For the Zimbabwe market, Munema indicated they were looking at futures and options. These, he said, will derive their value from equities listed on the local stock exchanges.
While a market can have derivatives backed by commodities such as agricultural products, more still needed to be done to educate the Zimbabwe market on the basics before expanding to other assets.
Plans are underway to expand into agriculture commodities as well as mineral commodities as part of ongoing initiatives to broaden the product range in the capital markets.
“Before introducing derivatives to the market, we need to ensure everyone participating has a clear understanding of what we are doing. That is why we are doing this in stages and starting off with trainings.
“Various market participants together with potential investors need to know how this works as an investment option, from buying to selling, how to make profits and the risks involved. The training will cover basic mechanics of derivatives, valuation methods and trading technics.” he said.
When fully implemented, derivatives will trade on the FINSEC exchange and will allow all investors classes access to the capital markets.
While financial inclusion in capital markets has remained very low, operators of exchanges have been working on products and platforms that increase retail investors participation such as C-TRADE.
Bongani Ndlovu