NG Clearing Targets One Million Monthly Trades

NG Clearing Limited, the SEC-licenced Central Counterparty Clearing House (CCP) has said that it is targeting doing a minimum of one million monthly trades by the end of this year.

This represents a minimum of N3.6billion in derivative futures contracts every month by 2025 considering currently daily trade of N7.2million.

The Managing Director of the firm, Farouq Oreagba, said this on Friday during a parley with select journalists following the expiration of the March futures contract.

He said, “Our target by the end of one year is one million trades a month. Last week, we had two trades worth N7.2m and the goal is to be doing a minimum of one million trades a month.  That is about N3.6bn every month and that is just from the stock exchange alone with one product and the exchange has two products.

“We have more products, which have been approved by the Securities and Exchange Commission, with more undergoing the process of approval.”

 The NG Clearing is a financial market infrastructure driving the clearing and settlement of exchange-traded derivatives instruments in the Nigerian Capital Market.

Derivative refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark.

A derivative is set between two or more parties that can trade on an exchange or over the counter.

Derivatives were launched in the Nigerian capital market to deepen the market.

The contracts for March expired on Friday.

Earlier in the week, two new futures contracts; NNGX30U4 and NGX Pension4, which will expire in September, were listed on the Nigerian Exchange last Monday.

“A lot of fund managers use derivatives to hedge their funds.  It can be of help to foreign investors worried about coming to Nigeria due to the foreign exchange situation.

“It also works for asset managers who want to hedge and allows speculators to take a position. It is a value that we are adding to the market. We traded the first derivative last Friday; we know that we are going to see a bit more. This is now an integral part of the Nigerian market.

“We are seeing significant interest from foreign investors and asset managers. The first trade last week was done by a Nigerian asset manager, who wanted to grow their asset base.”

Oreagba added that given the novelty of the derivatives market, investor education was important.

 “Investor education is key. A lot of people in the capital market do not know about it. We have been doing training for regulators. They appreciate the need to deepen the market, but they don’t understand it fully. The biggest challenge we have is knowledge or lack of knowledge.

“I know they have approved some stocks at the moment. The introduction of this product is for the benefit of the market,” he explained.

Speaking during a recent capacity-building workshop on derivatives, the acting Chief Executive Officer of NGX, Jude Chiemeka, noted that derivatives play a crucial role in global risk management, with over 90 per cent of leading companies using them.

He said, “The derivatives market continues to grow rapidly, expected to reach $39.17bn by 2027.  In Nigeria, the NGX derivatives market is positioned to drive innovation and diversification in the financial sector, offering a transparent platform aligned with international standards.”

March 18, 2024