British American Tobacco (BAT) Kenya risks expulsion from the recently launched derivatives market at the Nairobi Securities Exchange (NSE) over non-observance of trading rules.
The publicly listed blue-chip company has in recent times encountered rigidity in its trading counter, demonstrated by a trend of easing liquidity as the firm dances around the Ksh.7 million daily turnover requirement.
Average daily turnover on BAT’s counter fell to Ksh.9.6 million between April and June from greater Ksh.81 million in the first quarter of the year according to data compiled by the NSE and the Capital Markets Authority (CMA).
The slide in turnover, which similarly lowered BAT’s rank on NSE listed firms to sixth from second, saw the counter’s liquidity thin by over four percent in the second quarter to an average rate below 0.5 percent.
At the same-time, BAT market capitalization has been of the slide in the first six months of the year, having lost nearly Ksh.15 billion in stock value from the start of the year.
The hardness seen on the tobacco manufacturer’s counter has been reflected on the firm’s futures counter in the recently launched derivatives market, which like in equities has registered little to no action in the first month since the derivatives launch.
Of the 138 floated futures contracts in the first week of trading to Friday July 12, 2019, BAT posted no single contract, reflecting on the stock’s rigidity.
Further, and most recently, BAT featured nil futures listings in the trading week to Friday, August 9.
NSE derivatives unit has described ‘a close watch of the counter’ in response to Citizen Digital queries on the status and outlook of BAT on the new-fashioned market.
The ouster of BAT would cast gloom on the derivatives market which lost two futures stocks from the get go, including listed equities from Bamburi Cement and KenGen on the failure to meet the minimum Ksh.50 billion market capitalization threshold.
Stocks on the derivatives market are required to maintain an average daily turnover of at least Ksh.7 million and a further Ksh.50 billion in market capitalization across a scrutiny period stretching to the preceding six months.
The regulations are a means towards assuring liquidity for investors trading on the recently formulated trading platform.
The first month of futures trading has been indicative of a false start defined by low contract listings and uptake by NSE investors.
While, uptake remains a riddle for the NSE, listing have slowly been on the incline with 418 contracts being floated across last week.
Additional uptake to the contracts on offer will likely strengthen and provide traction to the infant market and would serve to correct the redundant trading options at the NSE including the SME linked Growth and Enterprise Market Segment (GEMS) and the Real Estate Investment Trust(s) (REITS) counter.
Futures contracts on the derivatives market provides investors with the opportunity to hedge against volatility while at the same-time providing the opportunity to derive value through the speculation of stock price increments.
While BAT treads the edge of the knife with regards to its derivatives trading status, the stock continues to hold value for investors irregardless of its premium pricing at the NSE.
BAT share price has for instance gained Ksh.11 since the start of the derivatives market in July to Ksh.515, spurring the firm’s market capitalization to Ksh.78.5 billion as at the close of trading on August 9.