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CIS supports NSE’s plan for trading in derivatives

By on June 25, 2015

The Chartered Institute of Stockbrokers has endorsed the plan by the Nigerian Stock Exchange to commence trading in derivatives.

The Chief Executive Officer, NSE, Mr. Oscar Onyema, had on Monday said that the Exchange would commence trading in naira futures in 2017 in order to help investors hedge against movements in the local currency.

“It would be awesome if we had a naira-dollar contract that we could trade on the exchange,” Onyema had been quoted by Bloomberg News as saying in an interview in London where he participated in an investor roadshow at the London Stock Exchange Group.

“Futures and options are asset classes that we think would be very beneficial to foreign investors.”

Reacting to the plan, the Registrar and Chief Executive Officer, CIS, Mr. Adedeji Ajadi, described the planned introduction of derivative trading as a welcome and long-anticipated development.

According to him, currency derivatives are strong components of risk management and potential instruments for creating liquidity either on an organised exchange or over-the-counter market.

“Currency derivatives are very efficient risk management instruments. They also provide alternative options for hedging, speculation and leverage. Trading in derivatives will enhance the capacity of market participants to minimise their risk, take advantage of mis-pricing of assets and potentially make more profits from the capital and money market,” Ajadi was quoted as saying in a statement by the CIS.

He explained that the proposed trading in derivatives would deepen the market as a whole since it had capacity to widen the variety of instruments and contracts that can be traded.

“Therefore, the planned introduction of currency derivatives (naira-dollars options or futures by the NSE is a welcome development that the market has anticipated for quite some time. I believe local and foreign investor alike would be excited about this positive development,” he said.

According to the statement, derivatives are derived from underlying instruments such as stocks, bonds, and commodities. There are other categories of underlying instruments such as weather and emission. The overriding objective of trading in derivative instrument is to hedge against risk.

The statement noted that the Exchange had for long been working on the introduction of trading in derivatives, regarded as highly sophisticated.

 

[Punch]