Markets

SEC approves seven NGX’s derivatives contracts

As a result, the Nigerian Exchange (NGX) Limited All-Share Index (ASI) rose 0.7 per cent to close at 39,170.95, just as market capitalisation rose N150.8 billion to close higher at N20.4 trillion.

Nigerian Exchange Limited has announced that it has received approval for seven derivatives contracts from the Securities and Exchange Commission on June 28, 2021.

The approved contracts are: 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 followed the successful registration of NG Clearing by SEC as a premier Central Counterparty, effective June 7, 2021.

With these approvals, NGX is inching closer to launch West-Africa’s first Exchange Traded Derivatives supported by NG Clearing in the risk management process.

Ahead of the launch of derivatives, the Chief Executive Officer, NGX, Temi Popoola, noted: “The launch of the derivatives market aligns with our commitment to build 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.”

Leading up to the launch of ETDs in the market, the NGX has continued to ensure widespread understanding of derivatives, its applicability and how investors can reap maximum value from the asset class.

NGX has collaborated with both local and international organisations such as SEC, JPMorgan Chase, CBOE Options Institute, and NG Clearing to facilitate in-depth capacity building programme on the derivatives market.

In addition, through its learning and development arm, X-Academy, NGX has hosted trainings to prepare capital market players who wish to undertake the Chartered Institute for Securities and Investment UK Global Derivatives qualification exam, and is on track to host further trainings for other stakeholders in the near term.

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or group of assets.

Common underlying instruments include bonds, commodities, currencies, interest rates, market indices and stocks.

The basic principle behind a derivative contract is to earn profits by speculating on the value of the underlying asset at a future date.

As such, derivatives are used as a risk management instrument, and are suited to both professional and private investors who wish to hedge an open position or gain exposure to assets and markets without necessarily holding the underlying assets.

ETDs are variants of derivatives traded on an organised securities exchange as against those other derivatives traded through informal over-the-counter market.

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