The Ghana Stock Exchange is working to introduce futures and options trading “in the near future” as it seeks to add to the depth of the market, said the managing director Ekow Afedzie.
The bourse also aims to increase the number of exchange-traded funds, said Afedzie, who took over on January 1. “We will increase investor confidence in our market which will translate into more trades and improved liquidity.”
Africa’s Stock Exchange is Evolving
African stock exchanges have begun to turn to derivatives such as futures and options as they seek to increase liquidity.
The instruments allow investors to hedge the volatility risk of an underlying asset such as a stock, bond or commodity.
In Kenya, the Nairobi derivatives market started trading in July 2019, beginning with futures for five major stocks and the equity benchmark.
That made it only the second sub-Saharan stock exchange to sell derivatives after Johannesburg.
The use of derivatives in early-stage markets brings risks. Cytonn Investments in Kenya points to the danger that some investors may not have sufficient funds to meet margin settlement fees, and may not know the new instruments.
Investor education for both foreign and domestic participants is paramount to ensuring uptake, Cytonn says.
In Ghana, Afedzie says the exchange will maintain its investor education drive.
Nigerian regulators have said that establishing a derivatives market is a key priority for 2020: the fear is that Ghana and Nigeria will be the first to be introduced.
The launch of Kenyan derivatives has been repeatedly delayed since 2015 and eventually followed a six-month pilot period in 2018.
Ghana Stock Exchange Aims at Futures and Options Trading Dual London Listing In January, the Ghana Stock Exchange collaborated with the London Stock Exchange (LSE) to encourage investment and shift the Ghana market from border to emerging-market status.
The aim of the agreement is to encourage cross-border listings between the two exchanges. “Dual listing is a big selling point for any potential issuer as it allows a wider range of investors to participate”, Afedzie said.
Ghana has three capital markets: the primary equity market for large companies, the Ghana Alternative Market for small and medium-sized firms and start-ups, and the Ghana Fixed Income Market for bonds.
The country’s bond market “is consistently outperforming its peers in the sub-region and thus becoming increasingly attractive,” Afedzie said. The exchange aims to use the ‘ Elite ‘ business support system of the LSE to plan more SMEs to raise capital, he said.
Afedzie sees technologies such as smartphone trading as a means of making Ghana’s stock market more attractive. He affirmed that,
He is in the process of acquiring a new monitoring system to ensure enforcement and encourage best trading practices.
The exchange would use a trading system similar to that used by the LSE to facilitate cross-border trading.
Establishing a single corporate news channel in Ghana would promote open disclosure.
Getting investor education right on derivatives will be more important for Ghana than beating Nigeria to the punch.
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