Nigeria’s stock exchange in collaboration with the securities commission on Tuesday held a training session for capital market operators on the legal and regulatory requirements of derivatives trading.
The workshop was meant to guide market participants to properly interpret the approved rules on Exchange-traded derivatives and the recently released derivatives and clearing rules by the Securities and Exchange Commission (SEC).
With the latest development, the Nigerian Stock Exchange is a step closer to achieving its goal of developing derivatives trading, a project it began in 2015 on the back of a market-wide feasibility study. Ever since, the Exchange has been working to promote the cause through partnerships, such as one with American investment banking giant, JP Morgan Chase last August, as it aims to facilitate in-depth capacity building programs on the market.
Moreover, the participation of the SEC demonstrates its commitment to developing an efficient derivatives trading market, a project outlined as one of its major objectives for 2020 earlier this year.
Chief Executive, NSE, Oscar N. Onyema noted that the training was held in recognition of the importance of capacity building and investor education to the development of derivatives trading, an asset class that is new to most stakeholders.
Derivatives are financial instruments whose value is reliant upon or derived from, an underlying asset or group of assets. The derivative itself is a contract between two or more parties, and it derives its price from fluctuations in the underlying financial asset (like a security) or set of assets (like an index).
Commonly used derivatives include futures contracts, forward contracts, options, swaps, and warrants. They are often used for commodities, such as oil, gasoline, or gold. Another asset class is currencies, often the United States (U.S.) dollar. There are derivatives based on stocks or bonds. Still, others use interest rates, such as the yield on the Treasury bills.
Although derivatives are currently being traded in Nigeria’s capital markets, they are done only over-the-counter. Introducing Exchange-traded derivatives on the local bourse would help to broaden the options available to support efficient implementation of risk management and investment strategies across diverse asset classes and financial instruments, according to Onyema.