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The East African : Dec 8th 2014
14 The EastAfrican NEWS DECEMBER 6-12,2014 PAYMENT SYSTEM Stockbrokers at the Nairobi Securities Exchange. Picture: File Derivatives to manage EAC exchange rates Will p≥ovide ≥educed ≥isk on c≥ossbo≥de≥ t≥ansactions, and insu≥ance against p≥ice movements By JAMES ANYANZWA The EastAfrican I nvestors in the EAC are betting on the implemen- tation of the futures and derivatives exchange to manage foreign exchange risks for cross-border investments. The planned derivatives exchange is expected to manage volatility in exchange rates among the EAC member states ahead of the implementation of the Monetary Union Protocol in 2024. “As part of the EAC inte- gration, there is a commitment towards establishment of the Monetary Union, which provides for a single currency for EAC member countries. But in the interim, we are rolling out derivatives to manage the exchange rate risks,” said Paul Muthaura, the acting chief executive of Kenya’s Capital Markets Authority told The EastAfrican last week. Derivatives are used for insuring against price movements, referred to as hedging. The exchange is expected to offer futures and other derivatives on minerals and commodities as well as currencies and interest rates. “In East Africa, we have a problem of foreign exchange fluctuations. However, we hope the derivatives market will go live next year because we are looking at hedging of currencies,” said Andrew Wachira, acting chief executive of the Nairobi Securities Exchange. Last year, securities and stockmarket intermediaries across the region hinted at the possibility of introducing multi-currency denominated initial public offerings (IPOs) to guard against volatility in foreign exchange. The East African Securi- ties Exchanges Association, which brings together the region’s stock exchanges, and Kenya’s Central Depository and Settlements Corporation noted that IPOs denominated in each country’s currency would protect investors against high exchange rate risks. They said the IPOs would allow investors to acquire SYSTEMS The East African Payment System is a multi-currency system in which payments are effected using any of the currencies of the EAC partner states. The cross-border payment infrastructure, which is an initiative of the East African Central banks, is now operational in four countries—Kenya, Uganda, Tanzania and Rwanda— with Rwanda being the latest entrant in October. It is part of a regional economic integration drive that seeks to, among other things, connect member countries through a single currency by 2024. shares in a currency of their choice, reduce foreign exchange risks and boost liquidity in stock trading cycles. The IPOs would also open the way for more investment options for funds that are holding a lot of cash, and make trading easier for such securities, they said. The introduction of multi- currency denominated IPOs is linked to a requirement for each of the EAC countries to domesticate regional rules for issuing fixed income securities as law. In Kenya, the decision to establish a futures and derivatives exchange was made during the 2010 budget speech. Efforts by regional mon- etary authorities to deepen the growth of regional capital markets also received a major boost following the implementation of the East African Cross Border Payments System, which went live on November 25, 2013. The integrated regional payment system was officially launched in May by the governors of the regional central banks. “The payment platform is already in place. Capital markets investors in the region can effect their payments through the system and commercial banks can do their settlements in all the EAC currencies,” said Mr Muthaura.
Dec 1st 2014
Dec 15th 2014