The first currency futures that track the exchange rate between the South African rand and and select African currencies was launched by the Johannesburg Stock Exchange on Friday, the JSE announced in a statement.
The three new currency futures track the exchange rate between the South African rand and the Zambian kwacha, the Kenyan shilling and the Nigerian naira. Currency futures allow investors as well as importers and exporters to protect themselves against the currency movement in the foreign country.
The African currencies made their debut on the JSE derivatives market, where they will be quoted against the rand.
The three currencies will fall under the JSE’s currency derivatives unit, incepted in 2007, allowing them to be traded with Group of 10 currencies of developed economies, including the dollar, euro and the pound.
Cross-currency trading
The new futures contracts will give market participants exposure on the JSE to the exchange rate between the US dollar and the Zambian, Kenyan and Nigerian currencies by trading against the rand.
To promote this cross-currency trading the JSE will charge trading fees on only one of the foreign trade logs, not both.
The latest trade statistics from the South African Revenue Service (SARS) show trade flow between South Africa and Nigeria amounted to R34.4-billion between January and July this year. In the same period, trade between South Africa and Kenya amounted to R4,6-billion and trade between South Africa and Zambia was valued at just under R18- billion.
“With Africa being a global investment destination it makes sense for the JSE as a major exchange player in Africa to be involved in providing appropriate products to mitigate currency risk and exposure when dealing in Africa,” says Warren Geers, General Manager: Capital Markets at the JSE.
Groundbreaking development
The JSE partnered with Barclays Africa and specialist brokers, Tradition Futures, to bring this new offering to market.
The platform will allow participants to trade anonymously, with the JSE assuming the role of credit counterparty to all transactions.
Andrew Gillespie of Tradition Futures says “It is a groundbreaking development to have a transparent, independent, well regulated platform to mitigate or assume FX Risk in these African countries, against any other currency of their choice – that does not prejudice anyone, irrespective of size, domicile or nationality … This allows for a level and fair playing field, where the best price is available to all, without bias or favour, which is a significant facet and feature of this market in African FX on the JSE.
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