KALONDE NYATI, Lusaka
THE Bond and Derivatives Exchange (BaDEx) Zambia Plc says the uptake of alternative financial instruments such as derivatives in the country still remain low despite having the capacity to broaden liquidity in the economy.
BaDEx chief executive officer Peter Simutalaho said derivatives, which are financial contracts with a value that is derived from an underlying asset and are often used as an instrument to hedge risk for one party of a contract while offering the potential for high returns for the other party, should be fully utilised to mitigate risks.
“As markets modernise, there is need for new financial instruments. We have not seen much innovation around this area because derivatives have potential for deep-pooled liquidity,” Mr Simutalaho said during the over-the-counter (OTC) derivatives consultative stakeholder workshop on Monday.
Mr Simutalaho said less than three percent of imports and exports in the country are not hedged against currency volatilities and utilising the derivatives market will cushion volatilities.
He said BaDEx, which has been operational since 2012, has created a platform for trading activity, but participation is still low, hence the need for more commercial banks and other players to participate on the derivatives market.
Currently, BancABC and Finance Bank are participating on the BaDEx platform.
“Commercial banks are key players on the market, but there is little participation on the BaDEx platform. Banks should also educate clients in simple language on products traded on the derivatives market,” he said.