Regulation Vital to Efficient Derivatives Market—Expert

By Dipo Olowookere

As Nigeria prepares for the launch of the exchange traded derivatives in its capital market this year, regulators in the country have been advised to come up with rules and policies that will make the market very efficient.

Former Chair of the US Commodities Futures Trading Commission (US CFTC), Mr James Stone, who was in Lagos this week to deliver a lecture on the derivatives trading, disclosed that for derivatives market to be efficient, regulation must first be consider.

According to him, after this is done, everything else will have to be taken slow and learnt through manageable experiments.

Mr Stone, who spoke on the ‘Pluses and Pitfalls of Derivatives Trading’ at the Nigerian Stock Exchange (NSE) on Thursday, January 18, 2018, stated that to manage apprehension and anxiety about participating in derivatives products, market participants to begin with Exchange Traded Derivatives, which offer a reliable platform for price discovery.

He advised participants to start small on all trading experiments and arm themselves by working for a sophisticated trader as well as spend time with experts.

The former lecturer of Economics at the Harvard University told his audience that derivatives did not cause the 2008 global financial crisis, but said they contributed to exacerbating the situation as a result of synthetic derivatives; corruption; interconnectedness of financial institutions; flawed models that didn’t flag certain risks opaqueness of the market and sometimes lack of understanding with credit rating agencies.

Speaking earlier at the seminar, chief executive of the NSE, Mr Oscar Onyema, explained that the initiative was part of the regulator’s international stakeholders’ engagement strategy to sensitive market players on derivatives.

“This partnership bodes well with our quest to introduce exchange traded derivatives into the Nigerian capital market.

“Last year, we leveraged our X-Academy platform to conduct two tranches of training on the legal and risk aspects of derivatives and central counterparty clearing. Mr Stone’s visit and lecture will add to the knowledge base that currently exists in preparation for the launch of the product this year,” he said.

Mr Onyema added that “the Exchange is committed to building capacity and enhancing the expertise of operators and investors towards a more efficient market.

Therefore, the lecture on ‘Pluses and Pitfalls of Derivatives Trading’ to be delivered by Mr James Stone will provide enriching perspectives and strengthen the capacity of capital market operators, who create value for investors through their operations on the Nigeria Stock Exchange.”

Likewise, Coronation Merchant Bank Group, a major player on the NSE, whose subsidiary, Coronation Asset Management recently listed three Mutual Funds on the Exchange – Coronation Money Market Fund, Coronation Fixed Income and Coronation Balanced Fund, noted that “a collaborative approach to capacity building will unlock inherent value on the Exchange”.

According to its Managing Director, Mr Abubakar Jimoh, “We are excited about our collaboration with the NSE on this noteworthy initiative, which will have positive effects on capital market operations in Nigeria.”

Mr Jimoh noted that “as a wholesale financial institution focused on transforming the face of merchant banking in Africa, Coronation Merchant Bank is not only open to innovative collaborations that will bring development to the African financial landscape, but will serve as a catalyst for revitalizing capital market operations across the continent.”