Ghana:The Stock Exchange regulator targets futures and options, dual London listings to deepen market

The Ghana Stock Exchange is working to introduce futures and options trading “in the near future” as it seeks to add to the depth of the market, managing director Ekow Afedzie told The Africa Report.

The course also aims to increase the number of exchange-traded funds, said Afedzie, who took over on January 1. “We will increase investor confidence in our market which will translate into more trades and improved liquidity.”

Stock exchanges in Africa have started turning to derivatives such as futures and options as they seek to increase liquidity.

The instruments allow investors to hedge the volatility risk of an underlying asset such as a stock, bond or commodity.

• In Kenya, the Nairobi derivatives market began trading in July 2019, starting with futures for five big stocks and the equity benchmark.
• That made it only the second sub-Saharan stock exchange after Johannesburg to offer derivatives.

The use of derivatives in early-stage markets brings risks. Cytonn Investments in Kenya points to the danger that some investors may not have enough funds to meet margin settlement payments, and or may not be familiar with the new instruments.

• Investor education for both foreign and domestic participants is key to ensuring uptake, Cytonn says.
• In Ghana, Afedzie says the exchange will be continuing its investor education drive.

Nigerian regulators have said that developing a derivatives market is a leading priority for 2020: the risk is that Ghana and Nigeria will race to be the first to launch.

• The introduction of Kenyan derivatives was repeatedly postponed since 2015 and finally followed a six-month pilot phase in 2018.

London Partnership

The Ghana bourse in January partnered with the London Stock Exchange (LSE) in a bid to promote investment and lift the Ghana market from the frontier to emerging-market status.

An objective of the accord is to promote cross-border listings between the two exchanges. “Dual listing is a big selling point to any potential issuer” as it provides a wider range of investors to participate, Afedzie said.

Ghana has three securities markets: the main equity market for big companies, the Ghana Alternative Market for SMEs and start-ups, and the Ghana Fixed Income Market for bonds.

• The country’s bond market “is continually outperforming its peers in the sub-region and thus increasingly becoming attractive,” Afedzie said. The exchange is seeking to use the LSE’s ‘Elite’ business support programme to prepare more SMEs to raise capital, he said.

Afedzie sees technology such as trading apps as a means to make Ghana’s bourse more attractive.

• He’s in the process of acquiring a new surveillance system to ensure compliance and promote best trading practices.
• The exchange will consider a similar trading system to that used by the LSE to ensure cross border trading.
• The establishment of a centralised corporate news platform in Ghana will promote transparent disclosure, he said.

Bottom Line: Getting investor education right on derivatives will be more important for Ghana than beating Nigeria to the punch.