The Derivatives Market in South Africa

This paper examines the role of the derivatives market in South Africa and provides policy options for promoting the development of derivatives markets in sub-Saharan Africa. South Africa''s derivatives market has grown rapidly in recent years, supporting capital inflows and helping market participants to price, unbundle and transfer risk. There are tight regulations on asset allocations by insurance and pension funds to prevent excessive risk taking. The development of derivatives markets in sub-Saharan African countries could enable market participants to self-insure against volatile capital flows. Theiroverdependence on bank credit as a source of funding could be reduced and their management of seasonal risk could be improved through the introduction of commodity futures. However, these markets must be appropriately regulated and supervised. Since such markets would likely be small, consideration should be given to the establishment of a regional derivatives market.Capital flows;Financial instruments;Financial risk;Liquidity management;Risk management;Securities regulations;Stock markets;derivatives market, futures contracts, derivative, currency futures, bond, derivatives markets, derivative instruments, stock futures, commodity futures, stock exchange, capital markets, futures market, capital market, interest rate futures, bond futures, hedge funds, volatile capital flows, futures exchange, bond options, capital inflows, financial services, financial market, hedging, interest rate derivatives, international capital, securities market, capital outflows, options on futures, currency derivatives, financial system, hedge, volatile capital, financial institutions, government bond, financial derivatives, capital market growth, access to international capital, options contracts, capital flow, capital adequacy, financial futures, financial regulations, international capital flows, open interest, stock exchanges, volatility of capital flows, bond yield curve, bond market, hedging instruments, bond yield, bond issues, financial markets, futures contract, government bond market, government bond yield, risk aversion, equity derivative, derivatives exchanges, bond market capitalization, equity derivatives, benchmark bond, call options, financial systems, financial regulation, derivatives trading, currency derivative, securities markets, derivatives market activities, bonds, credit rating, bond markets, financial sector, option contracts, local bond market, options futures, capital flow reversals, border capital flow, local bond