NSE to implement derivative markets by Q2 of 2017

The Head of Regulation at the Nigerian Stock Exchange (NSE), Mrs Tinuade Awe, said that Nigerian Derivative Market would be fully implemented before the second quarter of the year.

Awe made the disclosure in an interview on the side-lines of the Nigerian Structured Summit, tagged “Derivative and other Financial Instruments“ on Tuesday in Lagos.

“We are intending to use our directive to open our hope with derivative market this year, this 2017, in the second half of this year.

“We have actually had the plan to have derivatives since 2011, we actually have a project of five products that we wanted to roll out.

“We have equity, we have bonds and we have ETF (Exchange Traded Fund) and then derivatives, our futures and options are above derivative.

“So this is very, very important to us and we are on the way, we have been on the way with the five product since 2011, specifically we have been working on derivatives since 2015,’’ Awe said.

She said that the inability to get the Central Counter Party System for clearance of derivatives was affecting the implementation of transactions.

Awe said that insolvency law was also affecting proper implementation of the derivatives.

“There are numbers of challenges; one of them is our insolvency law in Nigeria.

“Insolvency law does not recognise the priority of a derivatives contract in the case of the bankruptcy of anyone of the parties to derivative contracts.

“The ability in a derivative contracts to be able to ensure that the collateral for the contract is save for the counter party is very, very important.

“That is the basis of which contract are made, so if insolvency does not recognise that, that is a problem and that is what we called problem of netting.

“The way to deal with that problem is to do what many countries have done which is to have appropriate netting laws that deals with the problem.
“In contracts like derivatives contracts and related contracts, like security lending contracts and other sort of financial instrument.“

She, however, said that identifying the derivative problem and taking steps in addressing the derivatives challenges would enable NSE to implement derivatives market before the end of 2017.

Derivative is a security with a price that is derived from one or more underlying assets; it is also a contract between two or more parties based on asset or assets.

Netting is a risk management tool that allows counter parties to trade efficiently without setting on gross capital.