TheCable

Nigerian Exchange Limited (NGX) says it will introduce more futures contracts in response to market demand.

A futures contract is a standardised legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future.

The development is coming after the exchange launched West Africa’s first exchange-traded derivatives (ETDs) market with equity index futures contracts.

Speaking during an interview on NTA, Jude Chiemeka, divisional head, capital markets at the NGX, said the introduction is in line with the exchange’s readiness to provide investors with a deep and liquid market to hedge their portfolios. 

He lauded the federal government, Companies and Allied Matters Act (CAMA) as well as Securities and Exchange Commission (SEC) for aiding the launch. 

According to Chiemeka, the equity index futures will provide market participants with tools to efficiently express opinions on an equity index market.

According to NGX, the new development is consistent with the exchange’s commitment to developing the Nigerian capital market by providing a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital.

Chiemeka also noted that these contracts were attractive to investors because the contracts were listed on the exchange trading system (X-GEN) which was deployed by NASDAQ, and there are rules governing order priority. 

“The contracts are highly geared, the opportunity for leverage in the derivatives market is a key element for investors who can use a little amount of money or collateral to gain exposure to a larger portion of the underlying instrument and the contracts are cash-settled which means investors do not have to hold physical asset before they can trade the contracts,” Chiemeka said. 

According to him, the provision for a standardised central counterparty system (CCP), NG Clearing Limited, for effective risk management would further boost investor confidence in the market and the CCP would clear the contracts and ensure parties fulfil their obligations.

Chiemeka noted that investors were excited because the market has been expectant. 

He added that the NGX derivatives market would not only allow investors to protect their positions but would also allow them to benefit from various opportunities.

“Although full uptake might take some time given the sophistication of the instrument, derivatives provide a greater pool of liquidity and encourage investors to enter the market which makes it more liquid,” he said. 

“Our goal is to introduce more futures contracts in response to market demand and readiness to provide investors with a deep and liquid market in which to hedge their portfolio.”