The Nigerian Exchange (NGX) is concluding arrangements to roll out its first set of derivatives on its largest stocks in a move expected to deepen the stock market and provide investors with new investment instruments
A report from the NGX indicated that the NGX will launch its Exchange Traded Derivatives (ETDs) segment with the rollout of the seven derivatives recently approved by the Securities and Exchange Commission (SEC).
The seven derivatives contracts include Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures, MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures and NGX Pension Index Futures. The NGX 30 Index Futures tracks the 30 largest companies quoted on the stock market while the NGX Pension Index Futures tracks specially screened stocks that meet the investment requirements of pension funds.
The preparation for the rollout of derivatives followed last week’s formal launch of the NG Clearing, the central counterparty (CCP) that will facilitate efficient trading in ETDs.
The NGX indicated that it planned to follow the first set of ETDs with index futures, derivatives that will track other sectoral and group indices at the stock market. Existing indices include banking, insurance, oil and gas, industrial goods, consumer goods, Islamic compliant ethical group, premium board and corporate governance.
According to the NGX, the derivatives market is expected to complement existing cash markets and provide investors and other market players with the necessary tools for tactical asset allocation, risk management and cost management for effective portfolio management.
ETDs are variants of derivatives that are traded on an organized securities exchange as against those other derivatives traded through informal over-the-counter (OTC) market.
Derivatives generally derive their values from their underlying assets such as commodities, stocks, bonds, interest rates and currencies as well as other derivatives and indices. The introduction of ETDs is expected to further enhance the complexity and breadth of the Nigerian capital market following the introduction and listing of the first Exchange Traded Fund (ETF) in 2011.
In his remarks at the launch of NG Clearing, Chief Executive Officer, Nigerian Exchange (NGX) Limited, Mr. Temi Popoola said the NGX as a multi-asset exchange recognises the importance of a well-developed derivatives market and has to put the right regulatory and technology framework in place to support the launch of a standardised ETDs market.