Saturday, February 20, 2021 / 2:00 PM / ASHON / Header Image Credit: AFEX Nigeria
The Association of Securities Dealing
Houses of Nigeria (ASHON) has urged the Federal Government to initiate
policies that will enable commodities exchanges to contribute towards Nigeria's
economic growth and development.
ASHON, which advocated a level playing field for all operators of commodities exchanges in Nigeria stated that an enabling operating would enhance optimal performance of everyone in the commodities exchanges' value chain.
In a statement signed by ASHON's Chairman, Chief Onyenwechukwu Ezeagu, the Association noted that the proposed capital injection of N50 Billion into the Commodity Exchange of Nigeria (NCX) might have unintended effect of creating uneven playing ground for other commodities exchanges that are privately promoted.
"To Enable the operators in the Commodities Ecosystem operate optimally, the government should enact relevant policies that prevent illegal mining by foreigners, ensure autonomy of the Capital Market apex regulator, the Securities and Exchange Commission (SEC), protect export proceeds, legislate laws to enable Agricultural Commodities to be linked to financial markets and fungibility and support for Pension funds for increased participation in the commodities ecosystem.
"The announcement to inject 50 Billion Naira into the Nigeria Commodities Exchange by CBN, is a welcome development. Any act by the Federal Government to stimulate the growth and development of the commodities ecosystem through the Commodities Exchanges is highly beneficial to the entire ecosystem. Commodities Exchanges play an important role in the commodities Ecosystem because they introduce structure, transparency, and price discovery into the system. It is important to note that Commodity Exchanges are not Commodity Traders, they are simply a structured platform that deal in both Commodities spots and Commodities Securities in multi-asset classes as approved by SEC.
"Although this announcement is a welcome development it is also important to note that any intervention into one Commodities Exchange creates an uneven playing field that defeats the benefits of healthy competition among the participants in the Ecosystem. It is also important to note that this injection of funds is better served within the ecosystem to support the farmers, aggregators, miners, refiners, processors and all the other participants in the commodities ecosystem.
"To Encourage the Privately Owned Commodities Exchanges, the government can ensure an open liaison opportunity between its agencies and the commodities Exchanges to create the opportunity for:
Joint stakeholder sensitization forums for commodity participants and regulatory bodies, committees for the development of financial funds and instruments to be listed on the Commodities Exchanges, partnerships for the accumulation of data to support the ecosystem such Warehouse distribution, commodities distribution, commodities consumption etc. and engagements for the development of legal and regulatory framework for effective Commodities trading.
"Support for the Ecosystem can be provided in terms of sensitization programs for all the participants to educate them on the certification and standardization requirements for commodities, relevant production practices, packaging best practices and cold chain equipment. Support can also be provided by creating programmes for leasing heavy equipment, acquiring enhanced seedlings, accessing effective storage and cold chain facilities and many other programmes that enhance the entire commodities ecosystem.
Ezeagu explained that Commodity Exchanges varied from Commodity traders saying "Commodity Exchanges provide a structured platform for the trading of securities commodities and not actual commodities. Commodity Exchanges create an enabling environment for relevant stakeholders to integrate into a system and provide quality services for the overall growth of the Commodities Ecosystem.
"Commodities Exchanges like Lagos Commodities and Futures Exchange (LCFE) carry on business in Exchange traded notes, Issue Commodities Securities with the active participation of other capital market operators, like Dealing Member Firms, Issuing Houses, a Depository, Settlement banks, accredited certification agents, collateral managers, insurance Companies etc. under the legal framework of the Securities and Exchange Commission and its approval.
"Commodities Exchanges provide a wide array of investible securities other than the traditional capital market financial instruments. Not only does it provide the option for investors to partake in the 1 Trillion Dollar economy that is the Nigerian Commodities Ecosystem, but it also provides the opportunity for investors and commodity participants to hedge against future risk by investing in derivative instruments backed by commodities. Commodity Exchanges also provide the opportunity for investors to invest in capital raising instruments such as Exchange Traded Notes which are asset -backed.", the statement says.