The Securities and Exchange Commission (SEC) has approved seven derivatives contracts for Nigerian Exchange Limited (NGX).
This was disclosed in an announcement released by the NGX today. The derivates contracts approved include; Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures, MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures, and NGX Pension Index Futures.
This announcement comes after the SEC approved NG Clearing as a premium Central Counterparty, effective June 7, 2021. NGX is getting closer to launch West Africa’s first Exchange Traded Derivatives, which will be supported by NG Clearing in the risk management process, thanks to these approvals.
What they are saying
The Chief Executive Officer, NGX, Mr. Temi Popoola, CFA, stated that the introduction of the derivatives market coincides with the aim of developing a market that flourishes on innovation and responds to the demands of stakeholders in accessing and deploying capital.
He said, “The launch of the derivatives market aligns with our commitment to building a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital. We are, therefore, excited about the prospects of deepening Africa’s position in the global financial markets through ETDs, as well as enhancing liquidity and mitigating against price, duration, and other financial risks that may arise from sophisticated financial transactional activities.”
What you should know
- A derivative is a contract between two or more parties, the value of which is determined by an underlying financial asset or collection of assets. Bonds, commodities, currencies, interest rates, market indices, and stocks are all common underlying instruments.
- A derivative contract’s core idea is to benefit by speculating on the value of the underlying asset at a future date. Derivatives are used as a risk management tool by both professional and individual investors who want to hedge and open positions or get exposure to assets and markets without having to possess the underlying assets.
- NGX has to work to guarantee a comprehensive awareness of derivatives, their application, and how investors may get maximum value from the asset class in the run-up to the debut of ETDs in the market.
- To support in-depth capacity-building programs on the derivatives market, NGX has partnered with both local and international organizations such as the SEC, JPMorgan Chase, CBOE Options Institute, and NG Clearing.
Derivatives market is such an interesting one. Though just evolving in this part of the world. A good number of Nigerian investors are still unfamiliar with it. I also believe those that are acquainted with it are buying time to see how the market plays out on the supposed underlying assets or asset class being used by the FMDQ OTC Exchange. I think more of public awareness by Financial Institutions and Deposit Money Banks would go a long way to familiarize investors to play in this market.