“Once it is introduced and takes off, it would present an
opportunity for our own government to leverage on traded derivatives and use it
to hedge risks. In actual fact, the capital market needs derivatives to hedge
against market volatilities”.
The exchange disclosed this to capital market correspondents
during its Academy Derivatives Market Webinar series themed; Understanding
Exchange Traded Derivatives Market which was held in Lagos on Tuesday.
According to the paper presented, an exchange traded derivative
is a financial contract that is listed and trades on a regulated exchange and
have become increasingly popular because of the advantages they have over
over-the-counter (OTC) derivatives, such as standardization, liquidity, and
elimination of default risk.
Speaking during the event, the Vice President, Market
Architecture at the FMDQ, Jumoke Olaniyan, said the project started about two
and half years ago as the exchange saw the need to introduce derivatives into
the capital market.
Olaniyan noted that exchange traded derivatives can be used
to hedge exposure or speculate on a wide range of financial assets like
commodities, equities, currencies, and even interest rates while adding that
the global market is now moving in the direction of derivatives.
She noted that the gross market value of OTC derivatives
which provides a measure of amounts at risk, rose from $11.6 trillion to $15.5
trillion during the first half of 2020, led by increases in interest rate
derivatives.
She said with the introduction of derivatives, the
government could leverage the products to hedge against crude oil prices.
“The exchange derivatives space remains to be tapped by the
government. We have a 91 per cent focus on OTC derivatives while it is 9 per
cent on the part of the exchange traded derivatives and the globe is now
shifting to this aspect due to the fact that it performed impeccably well
during the global financial crisis.
“It is this form of exchange that is being implemented by
the FMDQ in which we have been working on its implementation status which is
now in Phase II.
Also commenting, the Group Head, Derivatives Market Group,
FMDQ, Oluwaseun Afolabi, noted that with the introduction of the derivatives
market development project, there will be an increased participation by local
and foreign investors and market liquidity.
“Derivatives are needed in the market as it will bring an
increase in the secondary market liquidity, efficient capital allocation and
risk management, financial system stability, market transparency, market
sophistication, human capital development and economic growth”, he said.
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