By EMEKA EJERE

Recently, the Financial Markets Dealers Quotations (FMDQ) Securities Exchange Plc. unveiled plans to roll out the first derivative products in the first quarter of the year 2020. According to a report in The Guardian of August 20, 2019, titled: ‘FMDQ targets derivative products in Q1 2020, plans equity trading’, this is in addition to a concluded arrangement to expand product offering, including equities trading.

The Exchange had earlier announced a successful transition from an over-the-counter (OTC), securities exchange with focus on debt instruments to a fully integrated Financial Market Infrastructure (FMI) group.

The managing director and chief executive officer of FMDQ, Mr. Bola Onadele, said recently in Lagos, that the Exchange is targeting companies in the Fintech, agriculture, and housing/infrastructure sectors as well as other sectors that are either under-represented or  not represented in the already existing equities exchanges for listing.

According to him, the Exchange would kick-off with the equities segment of the market as soon as companies begin to demonstrate interest in accessing the capital market through the FMDQ platform.

FMDQ is Africa’s first vertically integrated FMI group, strategically positioned to provide seamless execution, clearing and settlement of financial market transactions across the debt capital, foreign exchange and derivatives markets, through the FMDQ entities – FMDQ Securities Exchange Plc., FMDQ Clear Limited and FMDQ Depository Limited.

In furtherance of its product and market development mandate, FMDQ has instituted an education programme for the Nigerian financial market stakeholders such as governments, regulators, operators, investing public, media and students in support of its sustainability strategy and corporate vision.

The FMDQ Academy is positioned to drive the Exchange’s sustainability by rallying financial market participants in alignment with FMDQ’s product innovation and market development agenda.

Last year, the FMDQ OTC Exchange marked its 5th anniversary as an exchange in the fixed income and debt capital market space in Nigeria, in an event that attracted eminent personalities and notable players in the financial market.

It was an opportunity to reflect on the journey of FMDQ formed by the Financial Market Dealers Association in 2013 and licensed by the Securities and Exchange Commission.

His Royal Majesty, Mohammed Sanusi II, former Central Bank of Nigeria (CBN) governor and Emir of Kano, who was the special guest of honour, Dr Sarah Alade, former deputy governor of the CBN and ex-chairman of the FMDQ, and Mr. Aigboje Aig-Imoukhuede, former Group managing director, Access Bank and pioneer chairman, FMDQ, all lauded the FMDQ team for the remarkable strides and impact they have made so far.

However, Sanusi speaking on his expectations in the next five years stated that his vision for the FMDQ OTC exchange had always been for it to be at the core of activities, in the international financial market.  The Emir also made a case for the exchange to look at how it can serve as a platform that can transform savings from current accounts in the financial market, to long term bonds and funding that can address infrastructure issues and areas like the education sector.

Dr. Alade, on her part, called on the FMDQ OTC to set out to address financial deepening of the market, expansion of the derivatives market and driving an active Nigerian inter-bank market. Mr Aig-Imoukhuede identified “demutualization” and addressing the gaps in the debt capital market through the deployment of technology as the way forward for the Exchange.

The launch of the Exchange five years ago was a unique development in the Nigerian market with the then director-general of the Securities and Exchange Commission, Ms. Arunma Oteh and Mallam Sanusi Lamido Sanusi, then CBN governor, in attendance.

By the time of the 5th anniversary in 2018, Arunma Oteh, had just finished her term as Treasurer/Vice-President World Bank, Mallam Sanusi Lamido Sanusi (now Mohammadu Sanusi II) was the Emir of Kano, while the FMDQ had evolved to become a key player in the Nigerian capital market ecosystem.

From pioneering several bonds listings to providing transparency in the fixed income market, the FMDQ has emerged as a leading hub for market development in Nigeria.

Speaking at the recent news conference in Lagos, Mr. Onadele said, “We are looking at how to create new entities for the future, to work and nurture them, to work with SMEs in different form, to work with private companies in Nigeria, which have not had access to long term financing.

“We have agenda to build big SME Fund. If you look at the economic development plan of the government, you see SMEs, agriculture and housing, and these businesses will require long-term capital. They will start with debt and after some time, they will seek equity.

“So, that is the kind of market we intend to cultivate. We are not going to the market to ask companies to delist from the Nigeria Stock Exchange. We are going to look for neglected areas and focus on them.”

He also explained that the exchange does not intend to compete with the Nigerian Stock Exchange (NSE). He said:

“When we work with some companies on the debt side, as at that point, the bearing ratio would mean they have to issue equities. We are not playing the role of attacking the Nigerian Stock Exchange. We are planning 20-30 years ahead.”

He noted that the FMDQ clearing house was formed to bridge the gap in financial market infrastructure in Nigeria, and forestall re-occurrence of the crisis in the global OTC markets in 2016, where investors who had derivatives with counter-parties lost their money due to non-existence of a clearing house system.

“In organising the debt market, we saw the fragmentation that occurs in financial market infrastructure, including clearing house, settlement platforms, payment system, exchanges and trade reforms.

On what caused the problem in 2016 when there was crisis in OTC markets internationally, Mr. Onadele explains: “People had derivatives with counter-parties, but the counter-parties disappeared, not that they ran away but they went bankrupt.

“So clearing is important and that is the essence of the clearing house and FMDQ Clear. When you take on transaction in derivatives in FMDQ, clearing takes place from the moment you take on the transaction till the day of settlement in a way to de-risk the counter-party. So, while the Exchange is de-risking the system through products, the clearing house is de-risking the counter-party risk.

“We do not think any other African country should have a better financial market than Nigeria. We have to position Nigeria’s capital market to be number one in terms of structure, in terms of governance, in terms of transparency, and we have to work on liquidity as much as possible.”

The Exchange in 2018

Amidst sell offs and the predominant rout in the equities market the FMDQ OTC Securities Exchange recorded huge volumes in 2018 as transaction turnover was  N165.1 trillion.

The FMDQ OTC Market Turnover Report showed the turnover on all products traded on the FMDQ secondary market – foreign exchange (FX), treasury bills (T-bills), bonds (FGN bonds, other bonds (agency, sub-national, corporate & supranational) & Eurobonds)) commercial papers and money market (repos/buy-backs and unsecured placements/takings). These figures exclude primary market auctions in T-bills and bonds.

The figure was an improvement on 2017 turnover of N142 trillion which represents a 16.3 per cent growth in the business transacted by the largest financial market in the country.

Treasury bills dominated the volumes of transactions made in 2018 accounting for 39.7 percent of total turnover while foreign exchange and buy backs followed with 24.2 per cent and 16.2 per cent of the total turnover respectively.

The top 3 transactions represent over 80 per cent of the entire market turnover, leaving bonds, commercial papers, unsecured placements and money market derivatives with the remaining 20 per cent.

Stanbic IBTC Bank was the leading dealer member by overall market turnover with Access Bank and United Bank for Africa (UBA) completing the list. The top ten dealing member banks accounted for 75.77 percent (N125.14 trillion) of the overall turnover in the market, with the top three accounting for 58.44 per cent (N73.13 trillion) of this sub-section of the market.

On bind listings, the report stated that “A review of market participation for bond listings revealed that of the thirty FMDQ RMLs, only eight were sponsors to bonds listed on the OTC Exchange in the period under review.

FBNQuest Merchant Bank Ltd., Lotus Financial Services Ltd. and Chapel Hill Advisory Partners Ltd. came 1st, 2nd and 3rd respectively in this category, with FBNQuest Merchant Bank Ltd. and Lotus Financial Services Ltd. co-sponsoring the Federal Roads Sukuk Company, 1 PLC bond and Chapel Hill Advisory Partners Ltd. sponsoring the N85.14 billion Lagos State Government of Nigeria bond.”

“The CP market saw the participation of four RMQs out of 32 FMDQ RMQs in this category. The top three positions were occupied by Stanbic IBTC Capital Ltd., Coronation Merchant Bank Ltd. and Chapel Hill Advisory Partners Ltd. with market participation of 61.30 per cent 31.34 per cent  and 27.52 per cent respectively, of the total value of the CPs quoted within the period,” as stated in the document

The data, collated from the weekly trade data submissions by FMDQ Dealing Member (Banks), represents trades executed among the dealing member (banks), dealing member (banks) & clients, and dealing member (banks) and the CBN.

However, while responding to email sent by our correspondent the corporate affairs department of FMDQ said the Exchange neither has a target to launch derivative products in Q1 2020 nor has a plan to commence equity trading by same timeframe.

The response reads in part:  “In response to your notion on FMDQ’s activities, please be informed that the Exchange does not have a target to launch derivatives products in Q1 2020; nor does it plan to commence equity trading by same timeframe (Q1 2020).

“The ultimate goal of FMDQ and its entities (FMDQ Exchange, FMDQ Clear and FMDQ Depository) for 2020 and beyond are to foster market development towards making the Nigerian financial market globally competitive, operationally excellent, liquid and diverse.”