Friday, February 15, 2019 6:30AM /Proshare
What were the key performance drivers of FMDQ’s markets?
Following the gradual recovery of the Nigerian economy from the recessionary and economic headwinds which had hitherto stagnated the financial markets, FMDQ OTC Securities Exchange (FMDQ)’s markets (fixed income, currencies and derivatives) experienced steady growth, particularly in the light of the sustained interest and activity levels of the Central Bank of Nigeria (CBN)’s Investors’ & Exporters’ (I&E) Foreign Exchange (FX) Window, and other market and product development initiatives deployed by FMDQ within the year 2018.
Some of key performance drivers of FMDQ’s markets include:
▪ Efficient Listings and Quotations Service: FMDQ provides an efficient, dynamic and innovative platform for capital formation for issuers seeking to raise debt finance, by providing robust and efficient platform for the registration, listing/quotation, trading and valuation of debt securities highly responsive and efficient listings/quotations process – thereby enhancing time-to-market - and promoting the requisite secondary market liquidity, among other benefits
▪ Data and Information Services: Recognising the importance of accessing key market information, FMDQ provides access to market data and information, via its website and the FMDQ e-Markets Portal, promoting transparency and price discovery in its markets, through the publication of pre-trade and post-trade information services, securities valuation, real-time prices, trading and market data, market and analytical reports etc., as well as historical information on prices in the debt and currency markets, thereby positioning the OTC Exchange as a valuable market data and information repository, servicing the needs of its Members, the financial market regulators, issuers, local and international investors, as well as other market operators, to enable users stay abreast of the activities in the markets and make more informed business decisions
▪ Strategic Partnerships: The actualisation of FMDQ’s transformative agenda for the Nigerian financial markets requires the collective input of all relevant stakeholders. In recognition of this, FMDQ places significant emphasis on its stakeholder engagements, ensuring the development and sustenance of participative, collaborative and informative relationships with stakeholder groups such as government, regulators, Members, issuers and the media, amongst others
▪ Product and Market Development Initiatives: As an innovation-driven Exchange focused on powering growth, through product and market development, FMDQ has continued to spearhead initiatives to transform the Nigerian financial market to be globally competitive, operationally excellent, liquid and diverse, in line with its GOLD Agenda. Some of such initiatives include:
What developments will affect the market going forward?
From market development to product innovation and institutionalisation of requisite market infrastructure and systems, the Nigerian financial markets and indeed, the economy will be shaped by strategic initiatives which FMDQ has set in motion towards achieving its transformational agenda of making the markets “GOLD” – Globally Competitive, Operationally Excellent, Liquid and Diverse.
Trailed by mixed reactions from investors and market participants, owing to the forthcoming elections, we look ahead with appreciable optimism for the FMDQ markets. Irrespective of the anticipated slowdown in market activities, the imminent stability in the FX market, which is largely attributed to the availability of the CBN’s risk management product, the Naira-settled OTC FX Futures, will expectedly continue to support a relatively stable market, providing a means of hedging against FX exposures during the course of the year 2019. In the same vein, the urgent need for a robust derivatives market to enable both domestic and offshore investors in the Nigerian financial markets access to a plethora of hedging products to manage their risk exposures is even more imminent and cannot be overemphasised. FMDQ, as part of its key mandate for the immediate to medium-term, has taken up this responsibility and is working assiduously towards delivering a viable Nigerian derivatives market with the introduction of Fixed Income Derivatives - Treasury Bills and Bond Futures - in the coming months. The activation of FMDQ’s wholly-owned Clearing House, FMDQ Clear, will also significantly strengthen the market as it is positioned to not only clear all fixed income spot trades, as well as OTC FX Futures transactions on the FMDQ platform, but also a plethora of derivatives products.
Furthermore, in order to provide seamless integration of the fixed income inter-bank market (which is made up of FMDQ Dealing Member (Banks)) and the securities dealers (including investment banking firms, securities trading/stockbroking firms and OTC fixed income dealers licenced to make market in all fixed income products admitted for trading on the FMDQ platform), FMDQ launched its Dealing Member (Specialists) [DMSs] membership category. This recent integration of the money and capital markets on FMDQ’s platform, within which both the SEC-registered Nigerian Stock Exchange as well as FMDQ Dealers are afforded the opportunity to trade together in a liquid fixed income market operated by banks, is another novel initiative which FMDQ shall leverage on in 2019 and beyond, to drive and enhance the liquidity of the Nigerian fixed income market as well as serve as an efficient channel for the effective integration of retail participants into the Nigerian fixed income market.
Similarly, the launch of the much needed product - Repurchase Agreement (Repo) with collateral management, and the deployment of additional modules of FMDQ’s proprietary market system, Q-ex - a customised fully-integrated multi-asset trading system with attendant post-trade services capabilities - to support the activation of new products and markets, are some of the other initiatives which FMDQ shall leverage on in 2019 to further deepen its markets. FMDQ will also leverage its Academy to provide financial market education and capacity building to market participants in 2019.
What are your market risk expectations for the year ahead?
Even as we continue to look on with some level of optimism for the markets in the year ahead, we acknowledge the perceived trend and indeed, anticipated slowdown of market activities in view of the forthcoming elections in the country owing to the ‘wait and watch’ approach seen to be adopted by some investors at such times. Although the FX market stability may experience some pressure, the sustained activity in the Investors’ and Exporters’ (I&E) FX Window is expected to support and cushion this effect, as the CBN continues to sustain and review its efforts and policies to ensure market stability in line with its objectives.
Furthermore, if Nigeria is to attain its potential and align itself as is expected in the global economic landscape, in view of the anticipated movement in oil prices vis-à-vis regulations amongst the oil producing countries of the world, the urgent need for Nigeria, led by conscious efforts of the government and its agencies, private sector and market stakeholders alike, to diversify the economy and lower the high dependency on foreign inflows, and indeed, crude oil, will remain at the fore burner of discussions as this cannot be overemphasised.
What are your views for an improved and efficient market?
A well-functional financial market is the collective effort of all stakeholders and for us at FMDQ, our key mandate for the Nigerian market and beyond is prosperity – for governments, corporates and individuals alike. In so doing, bridging the knowledge gap and continually expanding the network effects to include more participants into the market remains key for FMDQ. It is in this regard that the FMDQ Academy, on the one hand, was launched to address the observed knowledge and skills gaps in the Nigerian financial markets towards ensuring that capacities are aligned with the structural transformations and product innovations that are rapidly revolutionising these markets. On the other hand, FMDQ has evolved from a market organiser and self-regulatory organisation to a prosperity ambassador, pursuing strategic goals of being an adviser to financial services regulators, promoting the potential and viability of Nigeria by acting as the financial markets diplomat and very importantly, a catalyst for unlocking the much-needed infrastructure capital in Nigeria.
The deployment of stable government and regulatory policies guiding market activities; introduction of a thriving derivatives market to provide hedging opportunities to local and foreign investors; activation of a central clearing house (FMDQ Clear) to promote settlement finality of trades in the market, and the supporting establishment of a Settlement Guarantee Fund (SGF) towards mitigating settlement failure usually triggered by the inability of Clearing/Dealing Members or clients to meet their settlement obligations, and ensuring the complete settlement of trades; the eventual inclusion of a central counterparty (CCP) in the Nigerian markets to further mitigate systemic risk upon the provision of enabling laws; and the effective integration of retail participants into the markets are some of the key factors that will support an improved and efficient market.
Indeed, all hands must be on deck, working together and collaborating on strategic initiatives, to achieve that globally competitive, operationally excellent, liquid and diverse market which we all so desire.
Do feel free to share your opinions/observations and feedback with us vide and/or
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