The Johannesburg Stock Exchange has launched the first currency futures which track the exchange rate between the Rand and select African currencies such as the Zambian Kwacha, Kenyan Shilling and Nigerian Naira.
Currency futures allow investors as well as importers and exporters to protect themselves against the currency movement in the foreign country.
“The JSE is very excited about this new groundbreaking initiative as we have been working on this strategy for two years. 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.
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 less than R18 billion.
The JSE has partnered with Barclays Africa and specialist brokers, Tradition Futures, to bring this new offering to market.
Lourens Harmse of Barclays Africa who looks after sub-Saharan Africa Trading at the Corporate and Investment Banking division says, “Our involvement with the listing of the African currency futures on the JSE further deepens Barclays Africa’s commitment to growing Markets participation in Africa. As part of our vision to be the ‘Go-To’ bank, we strive to give our clients superior execution and access to the continent through world-class and leading innovation.”
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. The ability to transact anonymously, through specialist brokers such as Tradition Futures, and to have access to full and fair, timeous price discovery is an international benchmark requirement for a developed market. 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.
The new futures contracts will provide the market participants with the ability to get exposure on the JSE to the exchange rate between the US Dollar and the Zambian, Kenyan and Nigerian currencies through trading synthetic cross currencies. For example, investors can get exposure to the exchange rate between the US Dollar and the Kenyan Shilling by trading both against the Rand. To promote cross-currency trading the JSE will charge trading fees on only one of the foreign trade logs and not both.