Nigerian bourse plans to start derivatives trading next year
INTERNATIONAL - The Nigerian Stock Exchange, Africa’s second-largest bourse, plans to introduce trading in financial derivatives next year as it seeks to deepen the market.
“We will launch with equity index futures and then grow the list from there,” Chief Executive Officer Oscar Onyema said in an interview in Abu Dhabi Tuesday. The exchange plans to introduce futures and options to enable investors to hedge and manage risks, he said at the Africa Investment Summit organized by the Abu Dhabi Investment Authority.
Nigeria is seeking to encourage trading in the wake of a 14% slide in its benchmark index this year, the fourth-worst performer among 94 global equity gauges tracked by Bloomberg. While efforts to introduce derivatives in the past were hampered by the lack of a central counter-party clearing house, one has now been set up and the Lagos bourse is seeking a license for it from regulators, Onyema said.
Onyema has long been floating plans to introduce derivatives trading since his appointment in 2011, but has continually delayed its launch.
The Lagos stock exchange is also in talks with regulators to increase the share of pension fund investment into equities, to raise the current allocation to stocks at 4.95%, Onyema said. There are already signs that stocks are starting to “rally a little bit” thanks to an inflow of pension-fund money after the Central Bank of Nigeria tightened restrictions on which investors could trade its high-yielding, short-term, fixed-income debt securities.
The bourse is also lobbying President Muhammadu Buhari’s government to offer tax breaks to companies and exempt securities transactions from value-added tax to boost investment, according to Onyema. Nigeria, which vies with South Africa as the continent’s biggest economy is seeking to expand tax revenue amid a decline in income from crude oil, which contributes the bulk of the nation’s revenue. Johannesburg is home to Africa’s largest stock exchange.
The CEO is looking to complete a demutualization of the exchange early next year, a process that will convert it to a shareholder-owned public limited liability company from a member-owned mutual organization, Onyema said.