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How to reposition financial market, create functional CCP

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Experts that gathered at the just concluded 2019 FMDQ Nigerian Capital market Conference in Lagos, at the weekend, underscored the need for sector regulators to ensure that the nation’s financial system is well positioned.

The positioning, according to them, would be in such a manner that identification and settlement of all traded securities in the market become seamless by investors in line with global best practice.

Beside easy identification of securities, they also hinged a functional market on the creation of a flexible market structure that would guarantee easy entry and exit.

The stakeholders, therefore, identified Central Counter Party (CCP) as a crucial market infrastructure, stressing the need for regulators to create a robust regulatory framework around the instrument and make it more resilient as a navigator of risks.

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CCP, also known as central counterparty, is a financial institution that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in foreign exchange, securities, options, and derivative contracts.

It is typically operated by the major banks in each country, CCPs strive to introduce efficiency and stability into various financial markets.

The experts cited the South African market where availability of a robust infrastructure has become driving force in the creation of sustainable market liquidity and high level of investors’ confidence.

The Vice President, Association of Assets, Custodians of Nigeria (AACN), Ms Aderonke Adetoro, said international investors operate in a market that is relatively stable with high level of security guaranteed.

According to her, the existing rules and regulations guiding these instruments in a particular jurisdiction is of utmost important to both local and international investors.

“The investors want to know who is looking into their assets and how easy it is in clearing taxes in any given jurisdiction in comparison with other jurisdictions.

“We need to entrench international best practice in our operations to encourage clients to access our market. They want to see a market that is highly regulated with relatively stable forex market,” she said.

The Chief Executive Officer of Granite Central Securities and Depository, South Africa, Leone Rossouw, said infrastructure in South African market is so robust that it is a driving force in the financial market.

He said the CCP market is currently generating high level of liquidity and investors’ confidence for the market.

“In building CCP infrastructure, we involved professionals that have vast knowledge oh how deep a financial market should be.

“Most importantly, you must follow international best practice in CCP. You need to lower the cost of capital with international standard. You also need high concentration to lower your risks,” he said.

Also contributing, the Deputy Director and Head Registration, Exchanges, Market infrastructure and Innovation Department of the Securities and Exchange Commission Nigeria, Emomotimi Agama, said all participants in CCP must work together in agreement to give confidence to clients that CCP in Nigeria is in line with international best practice.

He pointed out that Nigerian financial system must identify various elements that would help attract participants and funds into the nation’s CCP.

“CCP is a very important market infrastructure, We are working to create regulation that is robust. CCP is a navigator of risks, so it must be made to be more resilient and market friendly,” he noted.

For the Head of Global Markets, West Africa, Stanbic IBTC Plc, Kayode Sosola, financial markets must work out modalities on how deepen the market and attract more participants.

“Whether there is liquidity and efficient price discovery, what players must be more interested in is to deepen the market and get more participants involved,” he said.

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