FMDQ targets derivative products in Q1 2020, plans equity trading

FMDQ Securities Exchange Plc has unveiled plans to roll out the first derivative products in first quarter (Q1) 2020.The Exchange, which recently announced a successful transition from an over-the-counter (OTC), securities exchange with focus on debt instruments to a fully integrated Financial Market Infrastructure (FMI) Group, has also concluded arrangement to expand product offering, including equities trading.

The Managing Director/CEO, FMDQ, Bola Onadele, said at a news conference in Lagos, at the weekend that the Exchange is targeting companies in the Fintech, agriculture, and housing/infrastructure sectors as well as other sectors that are either under-represented or  not represented in the already existing equities exchanges for listing.

According to him, the Exchange would kick-off with the equities segment of the market as soon as companies begin to demonstrate interest in accessing the capital market through the FMDQ platform.“We are looking at how to create new entities for the future, to work and nurture them, to work with SMEs in different form, to work with private companies in Nigeria, which have not had access to long term financing.

“We have agenda to build big SME Fund. If you look at the economic development plan of the government, you see SMEs, agriculture and housing, and these businesses will require long-term capital. They will start with debt and after some time, they will seek equity. “So, that is the kind of market we intend to cultivate. We are not going to the market to ask companies to delist from the NSE, we are going to look for neglected areas and focus on them.”

He also explained that the exchange does not intend to compete with the Nigerian Stock Exchange (NSE), adding that: “When we work with some companies on the debt side, at as that point, the bearing ratio would mean they have to issue equities. We are not playing the role of attacking the Nigerian Stock Exchange. We are planning 20-30 years ahead.”

He noted that the FMDQ clearing house was formed to bridge the gap in financial market infrastructure in Nigeria, and forestall re-occurrence of the crisis in the global OTC markets in 2016, where investors who had derivatives with counter-parties lost their money due to non-existence of a clearing house system.

“In organising the debt market, we saw the fragmentation that occurs in financial market infrastructure, including clearing house, settlement platforms, payment system, exchanges and trade reforms. What was the problem in 2016, when we had crisis in OTC markets internationally? People had derivatives with counter-parties, but the counter-parties disappeared, not that they ran away but they went bankrupt.

“So clearing is important and that is the essence of the clearing house and FMDQ Clear. When you take on transaction in derivatives in FMDQ, clearing takes place from the moment you take on the transaction till the day of settlement in a way to de-risk the counter-party. So, while the Exchange is de-risking the system through products, the clearing house is de-risking the counter-party risk.

“We do not think any other African country should have a better financial market than Nigeria. We have to position Nigeria’s capital market to be number one in terms of structure, in terms of governance, in terms of transparency, and we have to work on liquidity as much as possible.”