Nairobi, Feb. 23 -- Extreme see-saws in the shilling have cast a positive light on the need to expand our derivatives offering. The volatile nature of international capital flows exacerbated by our running budget deficit, high indebtedness, dwindling competitiveness (evidenced by the long-term fall in exports to GDP), among other reasons, remind us why the development of local derivatives markets provides a crucial alternative risk management.

In the example of South Africa, their now well-established derivatives market has not only helped them "self-insure" against volatile capital flows and manage financial risk associated with the high volatility of asset prices, but has also helped its many market participants price, unbundle and tra...