Others are structured notes and swaps The pricing and performance of

Others are structured notes and swaps the pricing and

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forward contracts and futures and credit derivatives which are based on loans. Others are structured notes and swaps. The pricing and performance of derivatives is often based on that of the underlying asset, although the reverse may also be true. Derivatives can drive the underlying market and the volumes traded in certain futures and options contracts can even exceed those in the underlying cash markets. Derivatives can be traded on an exchange or in an over-the-counter (OTC) market. The estimated annual global derivatives traded market volume is in the hundreds of trillions of dollars (Tonello, 2006). 1.1.2 Nairobi Securities Exchange (NSE) The Nairobi Securities Exchange was established in the 1920’s by the British as an informal market for Europeans only. It was incorporated to a company in 1954, with Africans being allowed to join and trade in the market in1963 and operated through the telephone with a weekly meeting at the Stanley. At the dawn of independence, stock market activity slowed down due to uncertainty about the future Kenya after independence but after three years of stability and economic growth, confidence in the market was rekindled and the exchange handled a number of highly over-subscribed public issues only affected by the oil crisis of 1972, which introduced inflationary pressures on the economy which depressed share prices. 5
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When a 35% capital gains tax was introduced in 1975 (suspended since 1985) it inflicted further losses to the exchange. The bourse lost its regional character following the nationalizations, exchange controls and other inter-territorial restrictions introduced in In the neighboring Tanzania and Uganda (The NSE Market Fact File, 2016). 1980s the Kenyan Government realized the need to design and implement policy reforms to foster sustainable economic development with an efficient and stable financial system. It set out to enhance the role of the private sector in the economy, reduce the demands of public enterprises on the exchequer and rationalize the operations of the public sector to broaden the base of ownership and enhance capital market development. In 1984 an IFC/CBK study, “Development of Money and capital Markets in Kenya”, became a blueprint for structural reforms in the financial markets, culminating in the formation of a regulatory body-The Capital Markets Authority (CMA) in 1989, to assist in the creation of an environment conducive to the growth and development of the country’s capital markets (Bitok et al., 2015). The NSE was registered under the Companies Act in 1991 and phased out the “call over” trading system in favour of the floor-based “open Outcry System”. Subsequently the stock exchange embarked on an extensive modernization exercise, including a move to more spacious premises at the Nation Centre in July 1994. The facilities included a modern information centre. The improvement of market infrastructure through the development of an automated central clearing settlement and depository system (CDS) intended to serve the East African region. With the incorporation of the Central Depository and Settlement corporation, share trading became electronic via the Central Depository System. This contributed to
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