Africa: Nigeria takes big step toward derivatives trading market

Rick Steves

The SEC has approved seven derivatives contracts from Nigerian Exchange Limited (NGX).

Derivatives trading in Nigeria has seen a new chapter in its early life. Nigerian Exchange Limited (NGX) has received approval for seven derivatives contracts from the local regulator, Securities and Exchange Commission (SEC).

The announcement follows the recent decision by the Nigerian SEC to develop a derivatives trading market in Nigeria. The financial watchdog issued an amendment to its regulatory framework in December 2019 to open the doors to derivatives trading and on central counterparties (CCP). The rules anticipate issues of arbitrage and credit and operational risks, while providing for reporting requirements.

In 2020, the central bank partnered with the FMDQ OTC Securities Exchange to launch long-term Naira settled OTC FX Futures Contracts to hedge against FX risk.

Now, the SEC approved seven derivatives contracts from NGX: Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures, MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures, and NGX Pension Index Futures.

The approval follows the registration of NG Clearing with the SEC, as a premier Central Counterparty. The next step for NGX will be the launch of West-Africa’s first Exchange Traded Derivatives supported by NG Clearing in the risk management process.

Temi Popoola, Chief Executive Officer at NGX, commented: “The launch of the derivatives market aligns with our commitment to build a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital. We are, therefore, excited about the prospects of deepening Africa’s position in the global financial markets through ETDs, as well as enhancing liquidity and mitigating against price, duration and other financial risks that may arise from sophisticated financial transactional activities.”

JPMorgan Chase and CBOE Options Institute have advised NGX as the exchange pioneers derivatives trading in Nigeria. The operator has also invested in educational programmes through its learning and development arm, X-Academy.

NGX’s hosted training is designed to prepare capital market players who wish to undertake the Chartered Institute for Securities & Investment UK Global Derivatives qualification exam.

Exchange-Traded Derivatives are variants of derivatives traded on an organized securities exchange as against those other derivatives traded through informal over-the-counter (OTC) market.

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