Mr Aigboje Aig-Imoukhuede, President, National Council of the Nigerian Stock Exchange (NSE), on Tuesday, attributed the delay in the introduction of derivatives by the Exchange to absence of netting laws.
Aig-Imoukhuede stated this in an interview with the News Agency of Nigeria on the sidelines of the Nigerian Structured Products Summit, organised by the Capital Market Solicitors Association (CMSA) in Lagos.
Netting is a risk management tool that allows counterparties to trade efficiently, without sitting on gross capital.
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets.
The derivative itself is a contract between two or more parties based upon the asset or assets.
According to him, the feasibility of launching derivatives by the NSE in 2017 would be determined by the netting laws, adding that netting laws were a fundamental element to the trading of derivatives.
“Unfortunately, I can’t speak for the pace and speed at which the netting laws will be passed, that’s an element of the process.
“What we can say is that we would certainly ensure that we can get a netting bill in draft form in front of the National Assembly.
“What I can assure is that we have the support of the Securities and Exchange Commission and certainly the Nigerian Stock Exchange knows what to do and other market participants are very much aligned in us getting most of the steps concluded in 2017.
“The one thing we are going to have to work on is the issue of netting, our laws don’t currently allow the system of netting which is very key,” he said.
The president also noted that the issue of the settlement trading platform, one of the key elements for counter parties to settlement, had been sorted out.
Aig-Imoukhuede stressed the need for trading of derivatives in Nigeria, in line with the economic realities.
He said the NSE would provide the needed training of participants for effective trading of derivatives in Nigeria.
“The training requires four elements to thrive in any environment.
“One is the underlining laws and legal framework; another of course, is the market infrastructure in which case you are looking at clearing platforms and settlement platforms.
“Another, of course is the availability of market intermediaries – banks, market participants — that can support the users of derivative products,” he said.
Aig-Imoukhuede maintained that there was need for derivatives for the economy to thrive, noting that, “in many respects, as far as the economy is concerned, from commodities to financial assets and so on Nigeria, has a need for derivatives.”
He stated that the country had the needed skills to drive the derivatives trading –the legal community, capital market, solicitors’ association, banks — “you can see the talent is there and growing.”