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NGX receives regulatory approval for seven derivatives contracts

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Nigerian Exchange Limited (NGX) has received approval for seven derivatives contracts from the Securities and Exchange Commission (SEC).
According to a statement by the exchange, the approved contracts are Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures.

Others are MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures and NGX Pension Index Futures.

A derivative is a contract between two or more parties whose value is based on an agreed underlying financial asset or group of assets.

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Common underlying instruments include bonds, commodities, currencies, interest rates, market indices and stocks.

The principle behind a derivative contract is to earn profits by speculating on the value of the underlying asset at a future date.

Derivatives are used as a risk management instrument and are suited to both professional and private investors who wish to hedge an open position or gain exposure to assets and markets without necessarily holding the underlying assets.

The exchange explained that the announcement followed a successful registration of NG Clearing by SEC, as a premier central counterparty, effective June 7, 2021.

It stated that the NGX was inching closer to launch West-Africa’s first Exchange Traded Derivatives (ETD) supported by NG Clearing in the risk management process with these approvals.

Ahead of the launch, the Chief Executive Officer, NGX, Temi Popoola, said the launch of the derivatives market aligns with the exchange’s commitment to building a market that thrives on innovation and responds to the needs of stakeholders in accessing capital.

He said NGX has continued to ensure widespread understanding of derivatives, their applicability and how investors can reap maximum value from the asset class.

According to him, the NGX has collaborated with both local and international organisations such as SEC, JPMorgan Chase, CBOE Options Institute, and NG Clearing to facilitate an in-depth capacity-building programme on the derivatives market.

He added that the exchange, through its learning and development arm, X-Academy has hosted training to prepare capital market players who wish to undertake the Chartered Institute for Securities & Investment UK Global Derivatives qualification exam, and is on track to host further training for other stakeholders in the near term.

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