Exchange, NGCL to create standardised derivatives market

Ahead of the planned launch of Exchange Traded Derivatives (ETDs) in the Nigerian capital market, the Nigerian Exchange Limited (NGX) and NG Clearing (NGCL), on Wednesday, engaged the Trading License Holders (TLHs) on how to create a standardised ETDs market

At the session, the Divisional Head, Trading Business, NGX, Jude Chiemeka said in its quest to be Africa’s preferred Exchange hub, the NGX recognises the importance of a well-developed derivatives market and has worked assiduously to build the regulatory, technology framework, and competence required to support the launch of a world-class ETDs market.

An Exchange Traded Derivative (ETD) is merely a derivative contract that derives its value from an underlying asset that is listed on a trading exchange and guaranteed against default through a clearinghouse.

Due to their presence on a trading exchange, ETDs differ from over-the-counter derivatives in terms of their standardized nature, higher liquidity, and ability to be traded on the secondary market. ETDs include futures contracts, options contracts, and futures options.

Chiemeka said the derivatives market will complement existing cash markets and provide investors and other market players with the necessary tools for tactical asset allocation, risk, and cost management tools for effective portfolio management.

Head, Derivatives Markets, NGX, Mrs. Chidinma Chukwueke-Okolo spoke on the roles, as well as the minimum operating standards for participating in the Derivatives market.

She listed areas TLHs must show a high level of competence to include, manpower and equipment, organisational structure and governance, effective processes, global competitiveness, and technology.

The Chief Operating Officer, NGCL, Ayokunle Adaralegbe pointed out that the derivatives market remains the largest single segment of the global financial market and has been estimated to be more than five times larger than global equity and bond markets.

He said local and international players in the derivatives market space anticipate the launch of ETDs in the market and are keeping a keen eye on the activities of NGX in this regard.