AFEX Commodities Exchange Limited and NG Clearing Limited have signed an agreement to develop the infrastructure that facilitates trading and central clearing of futures contracts for commodities such as cocoa, paddy rice, maize, and soybean in Nigeria.
The signing ceremony happened on Wednesday, November 9, 2022, in Lagos, where AFEX CEO Ayodeji Balogun and Mr Tapas Das, the CEO of NG Clearing, represented their companies.
Nairametrics understands that the agreement is a precursor to developing the technological infrastructure that will underpin the introduction of commodity futures in Nigeria.
The arrangement: AFEX Commodities Exchange will serve as the trading venue, while NG Clearing will serve as the Central Counterparty that guarantees the settlement of trades.
Mitigating risk: Currently, trading commodities such as cocoa, maize, paddy rice, and others are limited to the spot and OTC markets. And this exposes market participants to frequent price movements and counterparty risk. With the futures market, participants can lock in prices and positions of various commodities ahead of time without facing the risk of default by a counterparty.
More advantages: Beyond helping market participants mitigate price risk, the commodity futures market will deepen the financial system while acting as a catalyst for the continued development of the agricultural sector.
The significance: Ayodeji Balogun said AFEX share a drive with market regulators and other players in Nigeria’s capital market to deepen the market and unlock financing options and alternative investment classes for players in the commodities ecosystem. He said:
- “This collaboration with NG Clearing is a new leap for the financial market in the country that further opens opportunities for generating shared prosperity through the commodity market. We believe that this would further position the country as a preferred capital destination with a viable path of effectively managing risks in key sectors of the economy.”
Mr Taps Das of NG Clearing said the partnership with AFEX will usher in a new phase in the development of Nigeria’s financial and agricultural sectors.
- “As the central counterparty, we bring confidence and trust to the market as we will be guaranteeing the execution of the trades through our resilient collateral management processes.”
Editing by Emmanuel Abara Benson
