Business
FMDQ set to excite market with derivatives
BY EMEKA EJERE
There are strong indications that the Financial Markets Dealers Quotations (FMDQ) Securities Exchange Plc. will roll out the first derivative products any moment from December as sources conversant with happenings at the Exchange said preparations have reached advanced stage.
After conducting a feasibility study towards the introduction of various derivative products, FMDQ Exchange had initiated plans to roll out key interest rates and currency derivatives into the Nigerian financial markets. There are four main types of derivatives, namely – Swaps, Forwards, Futures and Options.
Derivatives are financial market products whose values are derived from one or more underlying assets or sets of assets, which can be bonds, stocks, commodities, precious metals, market indices, interest rates among others.
As a strategic asset class, derivatives present a useful risk management tool required for surviving uncertainties in the financial markets. They play a vital role in the development and growth of an economy by supporting price discovery, competitiveness and market efficiency which helps attract capital flows, reduce cost of capital and deepen the financial markets.
The Exchange had in 2019 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 was in addition to a concluded arrangement to expand product offering, including equities trading. The delay in the rollout may not be unconnected with the COVID-19 disruptions,
The Managing Director and Chief Executive officer of FMDQ, Mr. Bola Onadele, had told newsmen in Lagos that the Exchange would kick off with the equities segment of the market as soon as companies began to demonstrate interest in accessing the capital market through the FMDQ platform.
In furtherance of its product and market development mandate, FMDQ instituted an ongoing 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.
Contrary to the expectation of many market enthusiasts, FMDQ had taken time to explain that it is not out to compete with the Nigeria Exchange Limited (NGX) in equities trading or ask companies to delist but to create new entities for the future.
Onadeji had said at a media parley in Lagos that the new securities exchange would work with Small and Medium Enterprises (SMEs) and private companies to create new entities for the future.
FMDQ had in August 2019, formally launched its new status and corporate identity as a full-fledged securities exchange with registration to trade in all securities including fixed income, equities, derivatives, commodities and foreign exchange.
Formerly known as FMDQ OTC Securities Exchange, the transition of FMDQ from an over-the-counter (OTC) platform to a full-blown securities exchange, analysts say, represents a paradigm shift in the Nigerian capital market as it ends the unwritten mono-stock exchange policy and opens up the capital market to intense competition.
Nigeria’s apex capital market regulator, the Securities and Exchange Commission (SEC) had approved the amendment of the registration of FMDQ OTC Plc. from ‘an OTC Market’ to a full-fledged ‘securities exchange’ in March 2019.
FMDQ then secured necessary approvals for a name change to ‘FMDQ Securities Exchange Plc. (FMDQ Exchange) with immediate effect, thereby aligning its name to its upgraded status in the capital market.
Again, in June 2019, the Exchange received SEC’s registration of its wholly owned central securities depository subsidiary – FMDQ Depository Limited, which is positioned to provide collateral caching, custodian and settlement services with excellent operational capabilities tailored to provide value to its stakeholders.
Explaining why FMDQ Holdings Plc. was licensed as a full-fledged securities exchange, SEC had said it was done in order to create competition in the capital market.
Speaking at a media parley after the 2019 second quarter Capital Market Committee meeting in Lagos, the then acting director general of SEC, Mary Uduk made known that competition is healthy for business and that licensing FMDQ would create options for market operators to choose from.
She said, “Competition is good for the market. We expect other similar cases to follow. FMDQ’s licence creates the kind of competition that will bring down cost and improve efficiency in the capital market. It is a welcome development to the market, and it shows that the market is growing.”
Similarly, in what looked like a corroboration of SEC’s position, the chief executive officer of the then Nigerian Stock Exchange, Mr. Oscar Onyema, said the NSE and FMDQ would compete within the ambit of the law. Onyema was responding to questions bothering on possible rivalry between the two exchanges during the 2019 recap and outlook for 2020 which held in Lagos.
“Yes, we are going to compete…we are going to compete within the law”, Onyema had said.
FMDQ Depository Limited completes the value chain of pertinent market infrastructure in the Nigerian financial markets, particularly the post-trade spectrum, following the operationalisation of FMDQ Clear Limited.
According to FMDQ, the implications of its new status are far-reaching as the careful implementation of the FMDQ Entities – FMDQ Exchange, FMDQ Clear and FMDQ Depository – have created robust linkages between hitherto fragmented spheres of the markets. They have also presented the market with an efficient, innovative and integrated financial market infrastructure (FMI) group for the seamless execution, clearing and settlement of financial markets transactions.
Having set the pace in the fixed income, currency and derivatives markets, the Exchange is positioning itself to cover new markets equities and commodities in the short to medium term. .
Mr. Onadeji noted that the exchange, which he assured would continue to trade in all securities including fixed income, derivatives, commodities and foreign exchange, was looking at how to create new entities for the future, work with and nurture SMEs and private companies in Nigeria that have no access to long-term financing.
“We are not playing the game of attacking the NSE. That is not our role or our job or the way we do business.
“Rather we are looking at how to create new entities for the future, to work and nurture them, to work with SMEs, private companies in Nigeria who have not had access to long term financing.
“So, we are in the business of planning 20-30 years ahead and working with Nigerian entities in getting prosperity to Nigerians,” he said.
Delivering his virtual address to the market on the 2020 GOLD Awards held on November 5, 2021, Mr. Onadele, noted the uniqueness of this year’s commemoration, highlighting the challenges posed to the market by the COVID-19 pandemic, and lauding the efforts of the participants at maintaining the integrity and resilience of the market.
GOLD stands for Global Competitiveness, Operational Excellence, Liquidity and Diversity.
While expressing his appreciation for their contributions and collaborative efforts towards making the Nigerian markets GOLD, he noted that FMDQ, as a critically important financial market infrastructure in Nigeria, recognises that an efficient financial market is a result of the collective effort of all stakeholders.