SEC Shifts Focus to Derivatives Trading for Market Liquidity

By Adedapo Adesanya

The Securities and Exchange Commission (SEC) has said it was shifting its attention to an efficient derivatives trading market this year after achieving a considerable success in reducing unclaimed dividends in 2019.

Acting Director-General of SEC, Ms Mary Uduk, while speaking in an interview, said derivatives trading was among the top priorities of the commission in 2020 because it was an important tool for boosting liquidity in the Nigerian capital market.

“Derivatives are traded in all the big markets around the world and they are used in risk management. They are also used to hedge the trade in other securities.

“We believe in addition to that; this is a good time to have derivatives in our market. They are currently being traded in our markets but they are traded over the counter.

“Now we want to introduce exchange traded derivatives so that people can now hedge their positions in the market. The number one advantage apart from the risk management one is that it gives traders and investors more instruments to invest in,” she said.

Ms Uduk noted that her agency has put in place a robust risk management framework for extended traded derivatives to protect investors who choose to try the investment tool.

She said, “These rules cover in addition to the registration requirements, the derivatives contract themselves and also the participants in the derivatives market.”

Ms Uduk added that the rules also specify the risk management framework that the SEC expects that every participant in the derivatives market would have, which includes the exchanges, the central counterparties and even the dealing members themselves.

She said the commission also expects that the exchanges make rules around what kind of investors can invest in derivatives and what kind cannot.

“We are watching from every part of it and also learnt from countries that have done this for 40 to 50 years, so we are not re-inventing the wheel.

“We have also learnt from mistakes that these countries made and I can assure you that we are taking every necessary steps to ensure that this market is safe.

“We believe that this is the time to have derivatives in the market and we believe that we can introduce them in a way and manner that is beneficial to the entire market,” she noted.