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Panashe Chikonyora and Chipo Chaumba Financial Securities Exchange Limited (Finsec) says it will soon launch an electronic trading system for derivatives on its securities platform. The company said the system will enhance transparency, promote diversification as well as curb the dangers associated with existing methods. Derivatives are financial securities with a value that is reliant upon or derived from, an underlying asset or group of assets—the benchmark. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. Commodities in this instance can include oil, gold, tobacco or any such commodity of crucial value. Finsec said the electronic trading system will be the first of its kind in Zimbabwe with special features that will diversify the way the derivatives have been traded over the years, allowing market players to make informed decisions easily, flexibly and openly, without any fears of being scammed. In the past derivatives were done in a shadowy manner, on the counter or in the office”, but Finsec’s innovative system seeks to change all that, by enabling transactions to be conducted on an automated platform. The system also has an option pricing calculator, which has guidelines that allow it to auto-calculate volatility, although the customers can calculate volatility on their own; input spot price and provide room for a risk free rate. Speaking at a capital markets workshop on the launch of the derivatives market held at Royal Harare on Wednesday, Finsec general manager, Garikayi Munema, said they wanted a system that gives exposure to more detailed information before decision making. “The thrust to provide alternative instruments, in this instance an alternative trading platform; to allow transparency and standardise the instrument used to trade; and to broaden investors’ participation, motivated us to develop a new form and manner on how derivatives should be carried out. “The model is fully automated end to end to ensure transparency … and curb the negative impressions that have been associated with derivatives,” Mr Munema said. He said the model was a simple version, which focuses on premiums, thus making it cheaper. However, he said they plan to develop a more improved version once the first one is accepted and successful in the market. Meanwhile, Mr Munema acknowledged Government’s support given the positive response they have been receiving from to the Reserve Bank of Zimbabwe after they appealed to it to authorise the system to make use of both local and foreign currency amid plans to also target foreigners. The development has come at a time local capital markets, ZSE included, are seeking to extend capital market products to new investors, particularly those hesitant about investing on such markets like SMEs, individuals and other small businesses. It is also a move parallel to the Government’s call for enhanced financial inclusion. ZSE is presently pre-occupied with the task of introducing new and less complex products like ETFs to widen the scope and reach of the capital markets. In fact, the formation of Finsec emanated from the desire to create an alternative trading platform parallel to ZSE that many investors mistakenly presume to be the domain of corporates and other large entities per se.
Tue Mar 2020