The Nigerian Securities and Exchange Commission (SEC) has granted FMDQ Clear, a subsidiary of the FMDQ Group, an approval-in-principle to become the country's main central counterparty (CCP).
Market observers hope the move will further undergird Nigeria's blossoming securities lending market which is still nascent but has enjoyed major growth in volumes since the CEO of the country’s stock exchange promised “exponential growth” in February.
In addition, the CCP will be able to manage the consolidated risks in an operational, cost and capital-efficient manner that unlocks value for market participants within its value chain.
FMDQ says in a statement that as a critical financial market infrastructure, the achievement will redefine the landscape for financial transactions, including the development of repos, derivatives, and commodities markets in Nigeria.
The CCP adds that the approval introduces “endless possibilities to the scope of permissible products that could be developed and deployed within the ecosystem towards delivering long-lasting prosperity to the Nigerian economy”.
Commenting on the decision, Roy Zimmerhansl, practice lead at Pierpoint Financial Consulting and member of the Nigerian Stock Exchange’s new Equities Product Advisory Committee, tells SLT: “This news reflects the holistic approach of Nigeria to move its capital markets forward.
“Hence the various product committees at the exchange, including derivatives and exchange-traded funds (ETF) — plus the approval for the CCP — all the components of a modern diverse capital markets infrastructure.”
Zimmerhansl adds: “Securities lending is a hidden part of all of that, supporting equity market making and trading, derivatives hedging, ETF trading liquidity and revenue for lending the underlying. Potentially centrally cleared.”
Elsewhere, Bola Onadele Koko, the CEO at FMDQ Group, comments: “The evolution of FMDQ Clear to a CCP marks a critical and long-awaited milestone in the Nigerian financial markets ecosystem, positioning the markets for revolutionary growth in potentially colossal proportions.”
“FMDQ, as a group, is indeed appropriately placed to de-risk the Nigerian financial markets and thereby, in collaboration with market stakeholders, ensure the realisation of this enormous feat.”
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