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The Nigerian Exchange (NGX) took another major step in its quest to develop a viable exchange-traded derivatives (ETDs) market with the listing of two futures contracts, paving the way for secondary market trading on the ETDs.
The NGX listed the NGX 30 Index Front Month Futures Contract and NGX Pension Index Front Month Futures Contracts were listed yesterday. Both ETDs expire on December 16, 2022. The NGX 30 Index contract was listed at N1,988.25 per unit while the NGX Pension Index contract was listed at N1,908.25 per unit.
The NGX had in April 2022 launched its ETDs market with the unveiling of the two equity index futures contracts. The launch of the ETD market saw the unveiling of the two equity index futures contracts, NGX 30 Index Futures and NGX Pension Index Futures, with more securities to be added in the future.
To promote clearing efficiency, stability, and confidence, the Exchange had collaborated with a central counterparty (CCP) in Nigeria, NG Clearing Limited, to provide the clearing infrastructure for NGX derivatives market and its clearing members – Access Bank and Zenith Bank.
The ETDs market commenced trading activities with three stockbrokers – Cardinal Stone Securities Limited, Meristem Securities Limited and APT Securities and Funds Limited – which had been cleared by NGX Regulation Limited to facilitate transactions on behalf of investors on NGX derivatives market.
Chief Executive Officer, Nigerian Exchange (NGX), Mr. Temi Popoola, said the launch of the new market segment was consistent with the Exchange’s commitment to develop the Nigerian capital market by providing a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital.
He commended the efforts of stakeholders who have successfully driven the completion of the derivatives market since 2014.
“NGX remains committed to building an exchange that can cater to the increasingly sophisticated needs of domestic and foreign investors. A strong pillar in our strategy is to enhance liquidity and expand market capitalisation to the end that we create value for stakeholders, and the introduction of ETDs is a critical step in the right direction. The platform will play an essential role in broadening and deepening the market, adding new impetus to NGX’s leading position as Africa’s preferred exchange hub.
“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,” Popoola said.
Chief Executive Officer, NG Clearing, Mr Tapas Das, said the launch of the derivatives market in Nigeria was a testament to the maturity of the market, a sign that the market has come of age and was ready for transition 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 management, and risk management offerings as a critical central counter party (CCP) financial market infrastructure (FMI).
Das noted that the commencement of exchange traded derivatives in the Nigerian capital market came after many years of anticipation by stakeholders and was a remarkable step towards the actualisation of the Nigerian Capital Market Masterplan.
He pointed out that this coming at a time when economies are trying to grow after the setback of COVID-19 pandemic, creates an opportunity for market liquidity and capital flows, potentially contributing to Nigeria’s post-COVID recovery.
According to him, derivatives usher in a new asset class that will offer local and foreign investors new opportunities to hedge against market risks in Nigeria.
”NG Clearing’s purpose is to ensure that Nigeria’s derivatives market is safe and stable. We have put in place the infrastructure to achieve this. NG Clearing as a CCP is designed to provide clearing services across multiple asset classes and trading venues. The initial trading venue NG Clearing will be serving is the Nigerian Exchange. While we have started with equity index futures, we will subsequently introduce single stock futures, stock options as well as other asset classes, including commodities,” Das said.
ETDs are standardised, highly regulated, and transparent financial contracts listed and traded on a securities exchange, and guaranteed against default through the clearing house of the derivatives exchange. NGX ETDs 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