Investors shun derivatives

RYAN CHIGOCHE

Institutional investors continue to shun derivatives despite a massive campaign and education by Financial Services Exchange (FINSEC), which launched the first ever tradable securities platform in Zimbabwe six months ago.

FINSEC general manager Garikayi Munema said the market, which is trading futures and options, was dominated by retail investors.

“We are still in the pilot phase and most of the investors have been retail investors with little participation from institutional investors,” Munema told Business Times.

A derivative is a financial security or instrument whose return is obtained or derived from the return of another underlying instrument. The price is determined by fluctuations in the underlying asset.

Common examples of derivatives are future contracts, options (both call and put), forwards, swaps and commodities like maize, among others.

However, the FINSEC derivatives market only facilitates the trading of futures and options.

The contract gives the right to buy or sell the securities on previously agreed price regardless of the price of the same in the spot market.

Derivative instruments available for trading were Simbisa Stock Futures and Econet Wireless Stock Futures, Delta Stock Futures and Ecocash Stock Futures, among many others.

Options included Innscor Stock Options, Delta Stock Options, Ecocash Stock Options, Simbisa Stock Options, Econet Wireless Stock Options and Innscor Stock Options.

It was expected that institutional investors seeking to avoid the troubled Zimbabwe Stock Exchange (ZSE), which has been on a downward trend largely due to economic uncertainty and measures put in place by government to curb speculative activities on the local bourse, would take advantage of listed derivatives trading on the FINSEC platform.

The turmoil that engulfed equities trading on the ZSE, was expected to make listed derivatives a more attractive option for active investors.

But, retail investors dominated the market in the past six months, with very little participation from institutional investors.

Munema is, however, buoyant that there will be increased participation next year from both the retail and institutional investors.

“This is still work in progress as we continue with our investor education initiatives through webinars and masterclasses.

“We look forward to increased participation by both retail and institutional investors as investors become more familiar and comfortable with derivatives,’’ Munema said.

He added: “We also intend to introduce more instruments under this cluster and with the commodities exchange taking shape, this opens opportunities for commodity derivatives. The derivatives outlook is certainly promising and I would encourage more people to continue learning and practicing about derivatives.”

Munema said the maximum thresholds of ZWL$3m for institutional investors and ZWL$100,000 for retail investors are expected to be lifted as soon as the pilot period is finished at the end of this year.

A fully-fledged derivatives market will be made possible by the addition of more underlying assets next month.