Nigeria records $18.9 billion OTC FX Futures Contracts in 2020

Total value of OTC FX Futures Contracts hit $18.9 billion in 1,726 deals in 2020, up from $15.07 billion execution achieved in 1,068 deals at the end of transactions in 2019.

OTC FX Futures (OTC FX Futures) are non-deliverable forwards or contracts where parties agree to an exchange rate for a predetermined date in the future.

Reviewing its performance at the end of the exchange’s 9th yearly general meeting, FMDQ Group also stated that OTC FX Futures Contracts for 2018 and 2017 stood at $7.88 billion from 671 deals and $5.49 billion from 613 deals respectively.

The Group Chairman, FMDQ Group, and Deputy Governor, Economic Policy, CBN, Dr. Kingsley Obiora said year 2020 was undoubtedly challenging, with the outbreak of the COVID-19 pandemic and consequent GDP contraction of 1.79 per cent, a significant decline from the 2.21 per cent growth recorded in 2019.

According to him, the fortunes of the Nigerian financial markets were not spared during the period as activities in the foreign exchange (FX) market remained constrained by reduced liquidity and volatile capital flows, leading to market contraction.

He said investors embraced the fixed income market to avoid losses in equity portfolios, as yields tumbled below one per cent yearly, while the equities market rebounded in the last quarter of 2020.

“As corporates and investors were faced with very difficult choices during the period, many found succor in the Central Bank of Nigeria (CBN)’s innovative Naira-settled OTC FX Futures product, a panacea for the foreign exchange rate risk faced by market participants – domestic and international.

“Whilst the product, launched by the CBN in 2016 following almost two (2) years of major challenges in the FX market, has been successfully traded on FMDQ Securities Exchange Limited (FMDQ Exchange), and cleared on FMDQ Clear Limited (FMDQ Clear) – both wholly owned subsidiaries of FMDQ Group – since its inception, 2020 saw a significant increase in participation levels from hedgers.”

Obiora said the group commenced and ended all financial market transactions in a seamless, timely and cost-efficient manner, revealing significant market development initiatives across all its subsidiaries.

According to him, this is in contribution to the development of the Nigerian financial markets, with a focus on de-risking the markets across the full capital market value chain.

He said the market diversification strategy was successful, as the group recorded an increase of 44 per cent in revenue, to ₦31.00 billion, in 2020.

However, total market activity in the fixed income, currency and derivatives markets declined marginally by circa eight per cent to ₦215.09 trillion in 2020 from ₦232.68 trillion in 2019, with the most actively traded product category – Nigerian Treasury Bills & Open Market Operation (OMO) Bills – contributing a combined total of 35 per cent to total turnover.

He pointed out that the securities admission business of the exchange continued to thrive in 2020, as an impressive number of 82 securities, 13 bonds, 67 commercial papers and two funds were admitted on the platform, with a total value of ₦2.07 trillion.

In the clearing business, Obiora said a decline of 22 per cent was recorded in the value of cleared sovereign fixed income securities transactions due to the impact of the COVID-19 crisis.

He said there was a marked increase in OTC FX Futures participation levels, as total value of contracts executed by local and foreign corporates on FMDQ exchange and cleared by FMDQ Clear grew by 25.25 per cent.

He added that the depository and private markets business also contributed, albeit marginally, to the group’s revenue during the period under review.

Also speaking, FMDQ Group’s Chief Executive Officer, Bola Onadele assured stakeholders that the group will continue to focus on critical market development initiatives, towards the swift activation of robust and thriving derivatives and equity markets, whilst consolidating its debt markets leadership position, across its exchange, clearing and depository businesses in 2021.