Nigeria to launch West Africa’s first exchange traded derivatives

Arrangements are ongoing to launch West Africa’s first Exchange Traded Derivatives (ETDs) on the Nigerian stock market.

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), last week granted approval-in-principle to two central counterparty clearing houses (CCP), NG Clearing and FMDQ Clear.

The Nigerian Stock Exchange (NSE), the major promoter of NG Clearing, stated that the approval-in-principle will allow it to launch ETDs, to be supported by NG Clearing in the risk management process.

According to the Exchange, NG Clearing will play a key role in the financial market ecosystem by driving the safety and stability of Africa’s global marketplace through efficient and timely settlement of derivative trades.

Chief Executive Officer, Nigerian Stock Exchange (NSE) and Chairman, NG Clearing, Mr. Oscar Onyema, said with NG Clearing’s association with a member exchange of the World Federation of Exchanges (WFE), capital market players can expect NG Clearing to align with the highest standards of global best practices in delivering clearing and settlement services.

“Our main role is to improve the safety of our financial market by delivering best-in-class post-trade services that manage counterparty credit risk and reduce systemic risk. To mitigate these credit risks in an efficient and robust manner, we will interpose ourselves as a guarantor to both parties in a transaction, thus ensuring the successful execution of derivatives and other trades from various trade points,” Onyema said.

He said the Exchange intends to deliver an unparalleled CCP experience for the African financial markets noting that the introduction of ETDs on the NSE will deepen Africa’s position in the global financial markets, as well as enhance liquidity and help mitigate against price, duration and other financial risks that may arise from sophisticated financial transactional activities.

The NSE, being the leading securities Exchange in West Africa with global memberships that include World Federation of Exchanges (WFE) and International Organisation of Securities Commission (IOSCO), will introduce the first set of equity-linked products such as index-futures or single-stock futures and options that meet global financial structuring standards allowing global and domestics investors and investment managers to appropriately hedge against downside risk.

Onyema explained that in laying the groundwork to build a standardised derivatives market, NSE has worked with SEC and the Central Bank of Nigeria (CBN) to establish the optimal regulatory and legal framework for derivatives in the Nigerian capital market.

In addition, NSE has partnered global investment banks, such as JPMorgan Chase, to facilitate in-depth capacity building programme on the derivatives market.

He added that as arrangements are being concluded to the launch of ETDs, the Exchange will issue its first set of trading licenses in over 20 years as it continually welcomes and onboards trading and clearing members.