Nigerian Exchange Limited (NGX) says it will introduce more futures contracts in response to market demand and readiness to provide investors with a deep and liquid market to hedge their portfolio. This is coming after the exchange announced the launch of West Africa’s first Exchange Traded Derivatives (ETDs) market with Equity Index Futures Contracts.
According to NGX, the new development is consistent with the Exchange’s commitment to develop the Nigerian capital market by providing a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital.
Jude Chiemeka, Divisional Head, Capital Markets at the NGX while speaking during a Television interview commended the Federal Government of Nigeria as well as Securities and Exchange Commission (SEC) for aiding the launch, said that the Equity Index futures will provide market participants with tools to efficiently hedge or express an opinion on an equity index market.
Chiemeka also noted that these contracts are attractive to investors because of the contracts were standardized and listed on the Exchange trading system(X-GEN) which was deployed by NASDAQ, and there are rules governing order priority.
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“The contracts are highly geared, the opportunity for leverage in derivatives market is a key element for investors who can use little amount of money or collateral to gain exposure to larger and 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”, he said.
According to him, the provision for a standardized central counterparty system (CCP), NG Clearing Limited, for effective risk management will further boost investor confidence in the market and the CCP will clear the contracts and ensure parties fulfil their obligations.
When quizzed on the body language of investors for the derivatives market, Chiemeka revealed that investors are happy because the market has been expectant and NGX derivatives market will not only allow investors to protect their positions but will 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.
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,” said.
