NGX’s ETDs to go live, deepen position in global financial markets

FOLLOWING THE LAUNCH of NG Clearing as central counterparty (CCP) clearing house in Nigeria on December 9, 2021, the NGX is set to launch Exchange Traded Derivatives (ETDs) in the Nigerian Capital market. The launch is in alignment with the exchange’s drive to deepen its position in the global financial markets through ETDs.

ETDs are variants of derivatives traded on an organised securities exchange as against those other derivatives traded through informal over-the-counter (OTC) markets. Common underlying instruments include bonds, commodities, currencies, interest rates, market indices, and stocks.

Thus, derivatives are financial instruments most popularly used to reduce or hedge risks and are also believed to cover downside risks when large exposure exists in a portfolio long on stocks.

The NGX, at the launch event last Thursday, revealed that the standardized launch will be supported by the NG Clearing, the bestin-class CCP and Clearing House.

It also said activities of the NGX in establishing a vibrant derivatives market have also focused heavily on capacity building and that being the first line of contact for investors in the capital market, the exchange has reiterated that it is imperative that participants who engage in the derivatives business have adequate knowledge of these instruments.

Temi Popoola, chief executive officer, Nigerian Exchange Limited (NGX), while speaking at the event said, “I am excited to witness the official launch of NG Clearing and must congratulate its board and management for this historic milestone. As a multi-asset exchange, NGX recognises the importance of a well-developed derivatives market, and we have worked hard to put the right regulatory and technology framework in place to support the launch of a standardized Exchange Traded Derivatives (ETDs) market.”

Before this time, the NGX successfully completed the registration of NG Clearing by the Securities and Exchange Commission (SEC) as a premier Central Counterparty, effective 7 June 2021, ahead of its launch of the first West African Exchange Traded derivatives. With the approval, the NGX inched closer to the launch of West Africa’s first Exchange Traded Derivatives last June.

However, reports from the NGX have shown that index futures will be rolled out in the first year, while other products will follow as the market evolves in line with market readiness and demand upon the introduction of ETDs in the Nigerian capital market.

A disclosure by the NGX earlier in June 2021 noted that the approved contracts are 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.

In addition, the exchange has also collaborated with both local and international organisations such as SEC, JPMorgan Chase, CBoE Options Institute, and NG Clearing to facilitate in-depth capacity-building programmes on the derivatives market.

The derivatives market is expected to complement existing cash markets and provide investors and other market players with the necessary tools for tactical asset allocation, risk management and cost management for effective portfolio management.