FMDQ attracts N2trn fixed income deals since ‘E-Bond’ debut

In less than five weeks after the introduction of ‘E-Bond’ –a new trading system for Nigeria’s fixed income securities –the platform has attracted about N2trillion worth of deals.

Market analysts say the increased value of deals recorded in the this new platform which was developed by FMDQ OTC plc in conjunction with Bloomberg is an indication of market participants’ readiness to tap from Nigeria’s N12 trillion ($75.09 billion) fixed income market.

As at today, 24 banks and Discount Houses trade on the E-Bond platform which offers FMDQ dealing members access to best bid/offer prices, price discovery, online real-time blotter, interaction with buy-side and inter-dealer brokers, and online real-time market surveillance, among others.  

 “Being conservative, we target not less than N10trillion worth of deals before the end of December” said Dipo Odeyemi, divisional head, operation & technology, FMDQ OTC plc. H e added that “most of what we are doing is ground breaking and is with so much support across the board from stakeholders –regulators and operators.”

Odeyemi also disclosed that the reformed NIBOR went live yesterday at the FMDQ OTC market. “FMDQ is retaining overall responsibility for the administration/governance of the benchmark will document, implement and enforce policies, procedures and guidelines for the NIBOR,” he added.

Considering the potentials of Over-the-Counter (OTC) market for fixed income securities, the FMDQ OTC will next month (precisely May 21) hand over the first set of licences to dealing members in this market which now records an average of 400 trades per day, valued at N90billion.

Following a successful launch of the FMDQ OTC plc on November 7, 2013 it aims to enhance the global competitiveness, transparency, liquidity and diversity of Nigeria’s N12 trillion fixed income market.Currently in its kitty are FGN Bonds and Treasury Bills (T-Bills).

In addition, over the past four years, Nigeria’s Commercial Paper (CP) market has become impaired. The size of the market shrunk drastically from monthly outstanding volumes of approximately N1trillion as at December 2008 to N9.8billion in fourth-quarter (Q4) 2013, according to the CBN economic report.

In November 2009, the CBN released its guidelines on the issuance and treatment of Commercial Papers, in order to instill transparency and increase investor confidence in the CP market.

The Commercial Papers market experienced further decline, perhaps due to clause 5.1 which says either the issuer of a CP or the specific issue itself, shall be rated by a rating agency registered in Nigeria or any international rating agency acceptable to the CBN.

“ An indicative rating must have been obtained by the issuer at the time of submission of the declarations and information to the Central Securities Clearing System (CSCS).”

“FMDQ is looking at reviving the CP market. We are working closely with the rating agencies, regulators, and other stakeholders in the market, to see how we can manage the punitive points,” said Jumoke Olaniyan of market & business development, FMDQ OTC plc.

She observed that: “In the absence of a virile CP market, banks are forced to keep all short-term credits on their books as the corporates avoid the rating rule. Banks  balance sheets need to be liquefied in positioning for Basel 3 capital and liquidity provisions. On the other hand, the banks’ balance sheets need to be liquefied to provide more opportunities for creation of money, whilst the Pension Fund Administrators (PFAs) would benefit from the reviving  of the CP asset class.”

FMDQ OTC plc is a Securities and Exchange Commission (SEC) licensed Over-The-Counter (OTC) market securities exchange. It is owned by the Central Bank of Nigeria (CBN), all of the Nigerian banks, Discount Houses and the Nigerian Stock Exchange (NSE), through its subsidiary NSE Consult Limited.

Iheanyi Nwachukwu