NSE invites comments on rules of derivatives market

The Nigerian Stock Exchange (NSE), in line with its strategic objective to increase the number of asset classes traded on its platform, has called for contributions as it advances effort on introducing Exchange Traded Derivatives (ETDs) in the Nigerian capital market.

The move is in recognition of the need and appetite for these risk management and investment products in order to facilitate hedging of investment risks and diversification of asset portfolios.

In the cash markets, investors are typically exposed to asset price risk. In the absence of short selling and the supportive securities lending options, investors are highly susceptible to significant diminution in portfolio values once there is a reversal of a bull trend.

Thus, investors engage in aggressive efforts to lock-in unrealised profits - thereby resulting in a self-reinforcing market downturn, which negatively impacts investor confidence, and trading volumes. Derivative instruments enable investors to hedge their portfolios against adverse price movements which can result in unexpected losses.

NSE that the absence derivatives products contributes to the inability of riskaverse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices

The absence also result in lacklustre activity in the underlying cash market, particularly in times of stressed economic and market conditions;. lack of confident market participants; and Volatility in Exchange revenues. noted of