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Eight years after, West Africa’s derivatives market takes off

By Helen Oji
20 April 2022   |   2:43 am
Eight years after it was proposed, the Nigerian Exchange Limited (NGX) has formally rolled out West Africa's first exchange-traded derivatives (ETD) market

Eight years after it was proposed, the Nigerian Exchange Limited (NGX) has formally rolled out West Africa’s first exchange-traded derivatives (ETD) market, a new asset class expected to provide local and foreign investors new opportunities to hedge against risks.

Nigerian Exchange Limited (NGX)

Speaking at the launch of the platform, the Chief Executive Officer (CEO), NGX, Temi Popoola, said the derivatives risk would be managed by NG Clearing Limited, a premier Central Counterparty (CCP) infrastructure capable of reducing systemic risk\ alongside Access Bank and Zenith Bank as clearing members.

Popoola said the launch is consistent with the Exchange’s commitment to developing the Nigerian capital market by providing a market that thrives on innovation and responds to the needs of stakeholders in accessing long-term capital.

According to him, the platform will play an essential role in broadening and deepening the market, thereby adding new impetus to NGX’s leading position as Africa’s preferred exchange hub.

“The derivatives market will complement existing asset classes, provide investors and other market players with the necessary tools for tactical asset allocation, as well as improve risk and cost management for effective portfolio management. It will further enhance the participation of domestic and international investors in Nigeria’s financial markets, which will positively impact the performance of the economy.”

He disclosed that the ETDs market will commence with trading activities by CardinalStone Securities Limited, Meristem Securities Limited and APT Securities and Funds Limited as the first three Trading License Holders – who have been cleared by NGX Regulation Limited to facilitate transactions on behalf of investors on NGX Derivatives Market.

The NGX boss also stated that the launch was executed with the listing of NGX 30 Index Futures and NGX Pension Index Futures, even as more securities are expected to make up the list in the future.

“I want to commend the efforts of stakeholders who have successfully driven the completion of the Derivatives Market since 2014, I would like to specially acknowledge the work that was done under the previous management of the Exchange, led by Oscar N. Onyema, whose contributions have formed the foundation of our present gains and accomplishments made manifest through the launch of NGX ETDs market.”

“NGX remains committed to building an exchange that can cater to the increasingly sophisticated needs of domestic and foreign investors. Our partnership with best in class Central Counterparty, NG Clearing Limited, further engenders confidence in the ETDs market segment amongst market participants, as the clearing infrastructure is capable of reducing systemic risk and enhancing market transparency”, he said.

Also speaking at the event, the Chief Executive Officer of NG Clearing, said: “The launch is an indication that the market has come of age and is ready to transit into a new era.”

He said the risks that come with the derivatives market will be managed through NG Clearings’ robust technology-enabled clearing and settlement, collateral and risk management offerings as a critical Central Counter Party (CCP) Financial Market infrastructure (FMI).

On how trading in derivatives and the market would accelerate market growth, the Head, Research, FSL Securities, Victor Chiazor, said the introduction of derivatives will greatly impact the market positively as it will bring significant liquidity to the market.

He also stated that the new platform would also help to attract foreign investment as foreign investors and investment fund managers seem to prefer more sophisticated and financially rewarding investment products like derivatives.