By Modupe Gbadeyanka
A derivatives consultant, Mr Charles Rubin, has highlighted the unique benefits of derivatives trading, saying the form of investment is known to increase the level of trading activity across markets.
Mr Rubin made this known on Tuesday, September 8, 2020, when spoke at a webinar organised by the Nigerian Stock Exchange (NSE) themed Adopting Derivatives During Stressed Market Conditions.
In 2014, the exchange began its journey to launching a standardised Exchange Traded Derivatives (ETDs) market with a feasibility study which showed that the Nigerian capital market was indeed ready for the more sophisticated investment products ETDs will introduce.
As investors anticipate the launch of derivatives trading in the Nigerian capital market, the NSE has taken it upon itself to educate traders and stakeholders on how the investment tool works.
At the event yesterday, Mr Rubin, who is a former senior manager of the New York Stock Exchange, and New York Futures Exchange, said, “Derivatives have been known to increase trading activity significantly across markets.
“For instance, the National Stock Exchange of India is witnessing trading activity 25 times more than pre-derivative levels in its 8th year since introducing derivatives. This accounts for four times more than its cash business.
“Markets are likely to continue to enjoy such activity due to the fact that derivatives provide a hedge against risk, facilitate short selling and allow investors to undertake leveraged buying and selling.”
At the webinar, the Head of Trading Business at the NSE, Mr Jude Chiemeka, informed participants that the much-awaited local derivatives market would be launched in the coming months.
“NSE is committed to building a derivatives market that meets global standards.
“We have worked with regulators such as the Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) to establish the right regulatory and legal framework for derivatives in our market.
“We also continue to build on the trading infrastructure that will ensure domestic and foreign stakeholders are able to trade seamlessly once we launch within subsequent months,” Mr Chiemeka said.
On his part, the CEO of the NSE, Mr Oscar Onyema, said the exchange understands the vital role the derivatives market plays in the financial ecosystem.
“The global financial market has seen good growth and innovation over the past 20 years, and derivatives have contributed substantially to this impressive development.
“Today, the global derivatives market is the main pillar of the international financial system and the economy as a whole.
“The exchange in its quest to be Africa’s preferred Exchange hub recognizes the importance of a well-developed derivatives market and has worked assiduously to build the regulatory and technology framework as well as the competence required to support the launch of a standardized ETDs market,” he said.
Business Post gathered that the exchange is planning further training for capital market players in collaboration with the SEC to address the legal and regulatory requirements for the derivatives market.
This programme will be organised by X-Academy and will take place from September 14 to 18, 2020.
Adedapo Adesanya