Adedapo Adesanya
By Adedapo Adesanya
The MDQ Securities Exchange Limited has announced plans to introduce its dynamic Exchange-Traded Derivatives market on July 12, 2023.
The new market will offer three products – the Federal Government of Nigeria Bond Futures, Treasury Bills Futures, and Open Market Operation Bills Futures, at the commencement of its operations.
The exchange, in a statement, said these products would deliver the dividends of the derivatives market by serving as useful risk management tools, supporting price discovery, competitiveness, and market efficiency, which in turn will help attract capital flows, reduce the cost of capital, promote secondary market liquidity, and ultimately deepen the Nigerian financial markets.
It noted that financial markets are plagued with heightened price volatility, fluctuating market prices/rates, and the constant uncertainty of macroeconomic indicators, with the Nigerian financial markets not faring any better.
Hence, the new ETD market is its response to the counter and assuage these adverse effects; robust and efficient risk management tools, such as derivatives, are typically employed.
“Whilst model markets have been able to harness the potential of the derivatives markets to mitigate risk efficiently, diversify investment portfolios, and allow businesses to pursue expansion with a higher risk in a safe manner, the reverse is the case in emerging and frontier markets, such as Nigeria, as derivatives markets are non-existent or small – with a dearth of derivatives products – at best, and hedging costs are high, making it uninteresting for market participants,” it said.
FMDQ noted that it conducted a feasibility study in 2015 to launch Nigeria’s most dynamic ETD market in collaboration with market stakeholders, thereby introducing exchange-traded risk hedging products to the Nigerian financial markets as is obtainable in other developing and developed financial markets globally.
The project, according to the firm, has recorded many milestones and implemented several initiatives including, but not limited to, the development of the FMDQ ETD Market Framework, SEC-approved Rules, and membership requirements; deployment of fit-for-purpose and optimised ETD trading and clearing modules on the FMDQ Q-ex System; development of Risk Management and Operational Framework across the financial market infrastructure (FMI) value chain; development of SEC-registered derivatives products; and execution of various stakeholder engagements and training sessions.
It was disclosed that it has impacted over 2,600 market stakeholders across the financial markets value chain, ranging from regulators, financial and non-bank financial institutions, corporate treasurers, accountants, legal practitioners, journalists and individuals, to sensitise and promote readiness for the imminent launch of the FMDQ ETD market.
As market participants position themselves to take advantage of the emerging novel segment of the financial markets, FMDQ Exchange is working with its 21 dealing members (DMs), three DMs with full licences and 18 DMs with Approval-in-Principle – to participate in the FMDQ ETD market as its pioneer Derivatives Trading Members (DTMs).
The DTMs will receive support from FMDQ Clear through six (6) Deposit Money Banks (DMBs) who will share mutualised responsibility, as Members of the CCP, in its mandate of ‘de-risking’ the Nigerian financial markets either as General Clearing Members (GCMs) – capable of clearing transactions for their proprietary positions and those of other DTMs and clients; or as Direct Clearing Members (DCMs) – capable of clearing their proprietary positions and those of their clients only.
It said of the six DMBs, there are five GCMs, three of which have full licences (Access Bank Plc, Stanbic IBTC Bank Plc, and Zenith Bank Plc), whilst the other two have Approval-in-Principle, pending the completion of their SEC registration (First City Monument Bank Limited and United Bank for Africa PLC). The sixth DMB (Fidelity Bank PLC) is a DCM with an Approval-in-Principle, also pending the completion of its SEC registration.
In support of the launch of an active and thriving ETD market, FMDQ Exchange introduced the first of its kind Derivates-focused Podcast in Nigeria, Q-Dialogue, an FMDQ-framed colloquy, which is aimed at providing valuable, accurate, and objective information and insight on the FMDQ ETD market.
To further its business development mandate to implement initiatives that promote awareness and drive participation in the FMDQ derivatives market, FMDQ Exchange developed the Q-Estimator, an automated calculator that avails market participants the opportunity to estimate the cost of hedges and potential profit/loss in derivatives transactions or positions in the Nigerian financial markets, thereby equipping market participants to make strategic and informed investment decision-making in the FMDQ derivatives market.
