Modupe Gbadeyanka
By Modupe Gbadeyanka
First Vice President of the Nigerian Stock Exchange (NSE), Mr Abimbola Ogunbanjo, has expressed optimism that the expected introduction of Exchange Traded Derivatives (ETD) market in Nigeria will “eventually develop into a robust market place that can support our growth ambitions as a nation, using South Africa as an example of Africa’s first derivatives market.”
Mr Ogunbanjo, in his address on Monday at a lecture organised by the NSE in Lagos, stated that the South African derivatives market has grown rapidly in recent years to support capital inflows and help market participants to price, unbundle and transfer risk.
The NSE top shot noted that in main Europe and America, the derivatives market has grown impressively around 24 percent per year in the last decade into a sizeable and truly global market with about €457 trillion of notional amount outstanding in 2014.
The Exchange is planning to launch Nigeria’s derivatives market this year and ahead of this, it organised a training programme tagged ‘Legal & Risk Aspects Of Derivatives And Central Counterparty Clearing (CCP) Transactions,’ which took place at the Civic Centre in Lagos.
In his keynote address, the NSE First Vice Chairman agreed that the concept of derivatives remains relatively novel in the Nigerian financial market space and has only been noticeable within the Over-The-Counter (OTC) segment of the market, but maintained that the frontiers of the Nigerian financial market is expected to grow exponentially due to enhanced liquidity arising from the development of new and intricate financial instruments.
He said derivative instruments can either be good or bad depending on the user.
Mr Ogunbanjo explained that if the person using them is a business owner who wants to reduce the risk in a portfolio of stocks in order to increase the odds that his employees will enjoy a comfortable retirement, that’s a good thing.
A flow trader at a major bank could use that same derivative to hide risk in an offshore account in direct violation of the Bank’s Policy and Nigerian securities laws. It’s the intent of the person using it that determines whether a derivative is a tool for good or for evil, he added.
But according to him, “derivatives are simple tools that allow market participants to efficiently manage their risks.”
He described the derivatives market as predominantly a professional wholesale market with individuals, corporations, institutions and governments as its main participants.
“A single derivatives transaction may attract diverse levels of professional financial counterparts across the value chain. There are two competing segments in the derivatives market, being the off-exchange or over-the-counter (OTC) segment and the on-exchange segment (ETDs).
From a customer perspective in Europe, exchange trading is approximately eight times less expensive than OTC trading, hence, it is hoped that the immense opportunity for improved efficiency via the launch of ETDs in Nigeria will mirror their popularity experienced globally, he told participants at the seminar.
He said when fully operational in Nigeria, lawyers would be very busy because they would provide services to broker-dealers, banks, insurance companies, investment advisers, commodity advisers, hedge funds, private equity funds, securities and futures exchanges, clearing houses and pension fund administrators to name a few as well as any commercial enterprise that is the “end user”.
Mr Ogunbanjo assured that more training would be organised by the NSE to enhance Nigeria’s global positioning as a thought leader in the African derivatives space.
