THE Victoria Falls Stock Exchange (VFEX) in partnership with VCG Markets, a Mauritius-based broker, yesterday launched a new product called Contract for Differences (CFDs) that is expected to deepen local capital markets.
A CFD is a financial agreement between two parties that speculates on the price movement of an underlying asset, like a company stock or commodity, with the parties agreeing to exchange the difference between the opening and closing price of the asset.
This new product allows trading on a regulated platform, including access to a wide range of global markets that were previously difficult to access, according to Zimbabwe Stock Exchange (ZSE) group chief executive officer Mr Justin Bgoni.
"CFDs allow traders access to a wide range of global markets that would otherwise be difficult to access," said Mr Bgoni who described the introduction of CFDs as an exciting new chapter in the investment space.
He said that trading CFDs on commodities like gold, silver, oil, and various global indices is a simple process that allows individuals to participate in the market without directly trading the underlying assets.
VCG Markets' chief executive officer Mr Abdallah Garib said bringing CFD trading to Zimbabwe would benefit the country's socioeconomic fabric.
He added that VCG Markets' vision is to empower the trading and finance community and to drive positive change through innovation, technology, and excellence.
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Speaking at the event, Securities and Exchange Commission of Zimbabwe chief executive officer Mr Anymore Taruvinga said CFDs would be under the commission's supervision. The requirements include capital adequacy, risk management, and disclosure of obligations, which the regulator approved in November 2022.
He said the rules were to ensure that investors were adequately informed about the risks associated with CFD trading while safeguarding the integrity of markets by preventing market abuse and other forms of misconduct, and promoting fair and transparent trading practices.
"The rules are designed to achieve three primary objectives. Number one being to ensure that investors are adequately informed about the risks associated with CFD trading and understand the mechanics of these complex financial instruments," said Mr Taruvinga.
"The move will also safeguard "the integrity of our markets by preventing market abuse, manipulation, and other forms of misconduct, and the third one is to promote fair and transparent trading practices."
Mr Taruvinga said that the commission's primary responsibility was to safeguard investors, maintain market integrity, and foster investor confidence.
"As such, we deemed it prudent that CFDs, which are leveraged and present a new dimension of risk, should be introduced in our market under the supervision of an exchange," said Mr Taruvinga.
VCG Markets is authorised and licenced by different regulators from the Financial Services Commission in Mauritius, UAE, Iraq and now Zimbabwe under the VFEX.
"They are essentially the first probably foreign headquartered broker that we have registered," Mr Bgoni said.
