The Nigerian Stock Exchange (NSE) said at the weekend that it has received an approval-in-principle of the Securities & Exchange Commission (SEC) to launch West Africa’s first Exchange Traded Derivatives (ETDs) on its platform.
The move, which followed the registration of NG Clearing by the commission as a premier Central Counterparty Clearing House (CCP), allowing The Exchange launch ETDs, supported by NG Clearing in the risk management process.
A statement by the exchange said is the brainchild of industry stakeholders like in the Nigerian financial industry, which also includes the Central Securities Clearing System (CSCS) and top-tiered banks. It said 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.
Associated with a member exchange of the World Federation of Exchanges (WFE), the statement assured that capital market players can expect NG Clearing to align with the highest standards of global best practices in delivering clearing and settlement services.
Speaking on the development, Chief Executive of the NSE and Chairman, NG Clearing, Oscar Onyema, said its “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. We intend to deliver an unparalleled CCP experience for the African financial markets.”
Accordingly, 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 Exchange, with global memberships in the likes of WFE, IOSCO, ISG, plans to introduce the first set of equity-linked products such as index-futures or single-stock futures/options that meet global financial structuring standards allowing global and domestics investors and investment managers to appropriately hedge against downside risk.
In laying the groundwork to build a standardized 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 with global investment banks, such as JPMorgan Chase, to facilitate in-depth capacity building programme on the derivatives market.
Leading up to the launch of ETDs, the Exchange will issue its first set of trading licenses in over 20 years as it continually welcomes and on boards trading/clearing members. The NSE will also continue market-wide capacity building for global participants, including the recently held virtual workshop with the theme, Adopting Derivatives During Stressed Market Conditions and the Legal and Regulatory Requirements of Derivatives Trading for Capital Market.
