OKEY ONYENWEAKU
For sixFMDQ in top gear to introduce equities trading years from 2013 to 2019, FMDQ yearned for an opportunity to expand its products and become more competitive. In fact, the organization deployed all ethical measures to persuade the Securities And Exchange Commission (SEC) that it had done far reaching preparation to become a full-fledged Exchange.
In August 5, 2019, FMDQ’s effort yielded results surprisingly as SEC licensed it and empowered the former OTC market to now trade in fixed income, equities, derivatives, commodities and foreign exchange like the Nigerian Stock Exchange(NSE).
Unfortunately, those who with zeal and gusto supported the emergence of alternative exchange are still waiting in the wings to realize their dreams. But these expectations have not yet been met since the last 9 months.
Whereas the Exchange says it is not yet ready to commence trading in equities among other products, they are already collaborating with Association of Stockbroker Houses of Nigeria (ASHON) to initiate modalities that would create and enable stock brokers to start trading in equities on the platform of new exchange.
However, many stakeholders’ added that the economic environment does not favour the listing and exercising of initial public offering (IPO). Others who also share in this view explained that the experiences of the Nigerian Stock Exchange which has not attracted any IPO since 2008 is a good testimony to why FMDQ may want to tarry before embracing equities trading.
For some of the listing-shy firms, there have been serious concerns over the challenges of trading within the Nigerian Stock Exchange that emanate from the weak macro-economic environment which is heavily exposed to the fluctuations of oil prices. The capital market is not insulated from the occasional bites that come when the price of the nation’s single dominant export commodity, crude oil, takes a beating. Therefore, there is a consensus that if the capital market is the authentic barometer with which to measure the economy, there must be greater efforts at economic diversification to boost other sectors.
Before now also, owners of businesses, entrepreneurs and the World Bank have complained about the drawbacks from the continued lingering of multiple exchange rates. The development has hampered inflows and outflows which affect entrepreneurial efforts.
Investors in the market have also almost always believed that adequate liquidity is lacking in the market. Experts explain that liquidity is the ability to exchange your stocks for cash as quickly as possible and predictably. The implication is that you can sell your shares at a predictable price because there are enough buyers and sellers to stabilise the market.
But with the weak outlook in the market currently, the earlier touted liquidity status of the market may have weakened as well.
The Securities and Exchange Commission (SEC), the apex regulatory authority of the Nigerian Stock Exchange (NSE) is neither a member of the National Economic Council (NEC) nor has any role to play in the economic advisory team of President Buhari. Many have raised their eyebrows in wonder as to why an economy that presumably wants to grow should exclude such a vital body from its core planning and decision-making system.
Some also finger political instability in Nigeria as part of the reasons why there is a seeming gradual erosion of confidence in the market which should be a beehive of activity for the not only Africans but the world at large.
Nonetheless, Business Hallmark’s recent research revealed that as at October 2019, the Nigerian Stock Exchange (NSE) was the fourth-largest stock exchange in Africa with a market capitalisation of ₦12.8 trillion ($35 billion), and encompassing 161 companies from 11 different sectors.
Sectorally, recent developments show that the market has been dominated by the Technology sector (₦3.8 trillion), though the Financial Services sector accommodates the highest number of listed companies (53) and is the most actively traded.
The consummate value of the Nigerian Stock Market comes to about 9 per cent of Nigeria’s economy while at 292% South Africa’s stock market is almost 3 times the size of its economy. But this notwithstanding, it is clear that the Nigerian economy is the largest in Africa with GDP slightly larger than that of South Africa. And this makes many to wonder why much has not been done to tap a lot more of this capacity to serve the interests of the market and the overall economy to boot.
On this, analysts are divided as to whether the capital market in Nigeria has adequately measured up to world standards to the level of creating enough confidence to attract more companies, both local and foreign, to list on the bourse.
While the Chief Executive Officer of High Cap Securities limited, Mr. David Adonri basically believes that the market has come of age and contributed immensely to the development of the economy, he noted that the government does not seem to come up with policies that support the growth of the capital market.
According to him, the major challenge of entrepreneurship in Nigeria has to do with inadequate capital which duty lies primarily upon the capital market to create or form the type of capital that is required for diversification.
He however, explained that the capital market’s shallowness had denied it the capacity to achieve that project since policies tend to support the flourishing and development of the alternative money market instruments.
Adonri said the primary market needs to be reactivated, explaining for example that there has not been any initial public offering of worth since 2008.
‘The primary market has not been reactivated. Since 2008, there has been no offer for subscription. Companies prefer to raise money where their shares can be adequately priced and subscribed. The market does not have public policy support and there are various policy support measures that government should engage to help revive or activate the primary market,’ said Adonri.
‘What FMDQ could have done differently to attract investors as quickly as possible in the prevailing circumstances is yet to be known.’
However, FMDQ, now a full-fledged exchange started as Over the counter (OTC) market was entrenched in handling debt securities and other money market instruments and is probably waiting for the right time to introduce trading in equities.
FMDQ Holdings PLC (FMDQ Group or FMDQ), is Africa’s first vertically integrated financial market infrastructure (FMI) group, strategically positioned to provide seamless execution, clearing and settlement of financial market transactions, as well as data and information services, across the debt capital, foreign exchange, derivatives and equity markets, through its wholly owned subsidiaries – FMDQ Securities Exchange Limited, FMDQ Clear Limited, FMDQ Depository Limited, FMDQ Private Markets Limited and iQx Consult Limited – towards transforming the Nigerian financial markets through its “GOLD” (Global Competitiveness, Operational Excellence, Liquidity and Diversity) Agenda.
The exchange also provides a platform for the registration, listing/quotation, trading and valuation of debt securities such as bonds, funds, commercial papers and other short-term debt securities, among others.
By laying the foundation for sustainable and efficient financing in the Nigerian debt capital market, the Securities Exchange offers improved market credibility, continuous information disclosure, enhanced secondary market liquidity, and effective price formation to issuers, investors, financial market regulators, etc
Meanwhile, FMDQ’s turnover in the Fixed Income and Currency (“FIC”) markets for the month ended April 30, 2020 was ₦16.70trn, representing a MoM1 decrease of 34.92% (₦8.96trn) from the turnover recorded in March 2020 (₦25.66trn), whilst recording a YoY2 increase of 2.02% (₦0.33trn) from the turnover recorded in April 2019 (₦16.37trn)
FIC Market Summary
Foreign Exchange (“FX”) and OMO3 bills remained the most actively traded products, jointly accounting for 72.10% of the total FIC market turnover recorded in April 2020. (See Chart 1) FX Market
▪ Total FX market turnover in April 2020 was $11.36bn (₦4.38trn), representing a MoM decrease of 60.73% ($17.57bn) from the turnover recorded in March 2020 ($28.92bn; ₦10.73trn). This was driven mainly by the decline in economic activities and foreign capital inflows due to the Coronavirus Disease (“COVID-19”) pandemic, resulting in a decrease in FX supply, exacerbated by the temporary cessation of the periodic FX supply by the Central Bank of Nigeria (“CBN”) through its intervention sales in April 2020 ▪ Analysis of FX market turnover by trade type indicated that all categories recorded a MoM decrease in April 2020. The Member-Client category accounted for 46.16% ($8.11bn) of the total MoM decrease in FX turnover in April 2020, representing the highest decrease across all trade categories (See Table 1). Additionally, analysis of FX market turnover by product type indicated that FX Spot turnover and FX Derivatives turnover recorded MoM decreases of 79.76% ($11.12bn) and 43.03% ($6.45bn) respectively in April 2020
▪ In the OTC FX Futures market, the near month contract (NGUS APR 29 2020) with an outstanding notional amount of $1.52bn matured and was settled, whilst a new far month (60-month) contract, NGUS APR 30 2025 was introduced at a contract rate of $/₦413.36. The total notional amount of open OTC FX Futures contracts as at April 30, 2020 stood at c.$15.00bn, representing a 3.23% ($0.47bn) increase on the value of open contracts as at March 31, 2020 (c.$14.53bn), while the total notional amount of OTC FX Futures contracts traded to-date stood at $45.35bn as at April 30, 2020
▪ The CBN Official Spot US$/₦ exchange rate remained flat at $/₦361.00, as at April 30, 2020 compared to the rate as at March 31, 2020, while the Nigerian Naira depreciated against the US Dollar at the Investors’ and Exporters’ (“I&E”) FX Window by $/₦1.75 ($/₦385.55 as at March 31, 2020) to close at $/₦387.30 in April 2020. In the parallel market, the Nigerian Naira depreciated by $/₦35.00 to close at $/₦450.00 (March 31, 2020 – $/₦415.00), increasing the spread between exchange rates in the I&E FX window and the parallel market by 112.90% (₦33.25) to ₦62.70 from the spread recorded in March 2020 Fixed Income Market (T.bills5 , OMO bills and FGN6 Bonds)
▪ In the primary market, average discount rates on the 91-day, 182-day and 364-day T.bills declined further in April 2020 to 1.99%, 2.81% and 4.05% from 2.40%, 3.59% and 4.95% recorded in March 2020 respectively (See Chart 2). Similarly, average marginal rates for the 5-year, 15 year and 30-year FGN Bonds decreased to 9.00%, 12.00% and 12.50% from 10.00%, 12.50% and 12.98% respectively recorded in March 2020, as FGN Bonds were oversubscribed by an average of 459.45% at the April 2020 FGN Bond auction. (See Chart 3)
▪ As at April 30, 2020, total T.bills outstanding value remained flat at ₦2.65trn; OMO bills outstanding recorded a MoM decrease of 4.79% (₦0.50trn) to ₦9.94trn, while the total FGN Bonds outstanding value also recorded a MoM increase of 1.80% (₦0.17trn) to ₦9.64trn from ₦9.47trn as at March 31, 2020
▪ Liquidity in the secondary market for T.bills declined further in April 2020 as trading intensity fell to 0.01 from 0.08 in March 2020, with T.bills turnover decreasing MoM by 85.00% (₦0.17trn) to ₦0.03trn due to investors holding their T.bills investments to maturity. Trading intensity for OMO bills decreased marginally to 0.75 in April 2020 from 0.76 in March 2020, the first (1 st) MoM decrease in 2020 due to the MoM decrease in OMO bills turnover by 5.54% (₦0.45trn).
Trading intensity for FGN Bonds also decreased MoM to 0.16 in April 2020 from 0.26, as FGN Bonds turnover also decreased MoM by 34.85% (₦0.84trn) to ₦1.57trn, all as a result of lower activity due to the COVID-19 pandemic and its associated impact on financial markets globally. Market analysts suspect that the weak economy which has elicited continued bearish market at the Nigerian Stock Exchange.
Sometimes your plans do not go exactly how you expected. Even when banks or firms have done scenario building they in fact factor unforeseen circumstances.
FMDQ Exchange formally launched its new status and corporate identity as a full-fledge securities exchange, with the registration to trade in all securities including fixed income, equities, derivatives, commodities and foreign exchange on Monday August 5, 2019. This may will make it 9 months since stakeholders expected to enjoy an alternative platform for trading equities save for NSE.
