An exploratory study into the introduction of a successful derivatives market in Kenya

Abstract

The purpose of this study was to explore the factors that contribute to the success of a derivatives exchange and to establish whether these factors exist in Kenya which hopes to introduce its own derivatives exchange in the near future. Primary data was collected from capital market participants who included: stock brokers} investment banks} fund managers} investment advisors and regulators through the use of questionnaires; and secondary data from statistical databanks. A comparative study was used to analyse the data by benchmarking the indicators that explain the factors in a successful market and comparing the situation existing in Kenya in light of them. Descriptive analysis was also used for the primary data. The study found that economic development} political stability} a developed capital market} the types of products traded} infrastructural systems} a legal and regulatory framework} education of market participants} and many and active investors were important factors for the success of a derivatives exchange. The study also found that Kenya was not yet ready to establish a derivatives exchange which would be considered to be successful. Although Kenya is not yet ready to establish a derivatives exchange} measures can be put in place to facilitate the process of getting ready. Economic development and political stability may not be changed as easily} however putting in place the required regulatory framework and infrastructural systems and encouraging greater capital market development can be embarked on. This paper contributes to the body of literature by documenting the factors necessary for establishing a successful derivatives exchange in Kenya.