The Nigerian Exchange (NGX) Limited said, it is in the forefront of accelerating the development of Exchange Traded Derivatives (ETDs) in West Africa as ETDs Market holds immense potential for economic growth and development in Nigeria.
Derivatives are essentially contracts that derive their value from an agreed-upon underlying asset, index or commodity. Common underlying instruments include bonds, commodities, currencies, interest rates, market indices and stocks.
Market operators stated that by, providing enhanced risk management tools, increased liquidity, and improved price discovery, derivatives can attract domestic and foreign investors, boost market sophistication, and promote overall economic stability.
Consequently, the Exchange engaged relevant market stakeholders and developed a roadmap for the introduction and development of the ETD market in Nigeria. Furthermore, the Exchange identified and provided the required market infrastructures needed for the development of a thriving derivatives market including a robust regulatory framework, technology infrastructure, and capacity development.
On April 14, 2022, NGX introduced the West Africa’s first Exchange-Traded Derivatives Market, commencing with Equity Index Futures Contracts based on the highly regarded and widely tracked NGX 30 Index and NGX Pension Index. As of May 2023, the Exchange has already listed ten contracts, with a trading volume of nine contracts valued at N16.48 million. These figures vividly demonstrate investors’ appetite and preparedness for this innovative product.
NGX believes that the derivatives market will be deepened by introducing a broader range of product classes and intensifying investor education efforts.
Speaking at a capacity building workshop of the CFA Society, South Africa, held virtually with the theme ‘Building and Scaling Derivatives Markets in Africa’, the Divisional head, Capital Markets at NGX, Jude Chiemeka, said, enabling the development of the derivatives markets on the African continent requires more investor education and capacity building.
“Our markets are still in the nascent stages and investors need to be aware of the risks and opportunities that are inherent to derivatives. Stakeholder engagement and collaboration is also needed to catalyze growth,” he noted.
“At NGX, we have organized various capacity building sessions in partnership with major stakeholders in the capital market to educate investors on the intricacies of ETDs market. We also continue to drive conversations and engage regularly through forums and other marketplace development initiatives,” Chiemeka said.
NGX stated that the derivatives market has significantly increased in value and importance to become a strong pillar of the global financial system that enhances improved access to finance, price discovery and transfer of market risk.
Chiemeka added that, “NGX is poised to accelerate the development of ETDs market in Nigeria and is committed to rolling out other derivatives contracts based on market appetites including Single Stock Futures, Interest Rate Futures, Bond Futures, Currency Futures, among others.
“At NGX, we are confident that the introduction of Single Stock Futures contracts will drive the desired liquidity in this market segment as seen in other derivatives market jurisdictions. The Exchange is assiduously working on the technology implementation and systems integration that will allow for seamless trading and clearing of the contracts.”
