This content is from: Local Insights

Nigeria’s new trading platforms

Chuks Okoye
Nigeria's capital market operators and regulators have recently made significant efforts to deepen the capital market, including the introduction of market markers in the Nigerian Stock Exchange in 2012. The impact of that intervention has already been felt, with the NSE recording a 37% growth in market capitalisation at the close of 2012, making it one of the best choices for investment globally. The recent commencement of trading by two new platforms, the National Association Securities Dealers (NASD) OTC platform and the FMDQ OTC platform promoted by the Financial Markets Dealers Association are progressive attempts at expanding the pie.

The NASD OTC provides a regulated platform for the trade in securities of unlisted public companies in Nigeria thus creating an avenue for much needed liquidity and transparency for such securities. The FMDQ OTC on the other hand sets out to promote over the counter trading in financial market instruments such as treasury bills, bonds, repos and foreign exchange. These platforms seek to increase the available channels and instruments for capital market transactions. They also are aimed at catalysing the development and usage of those instruments traded as investors have the incentive of a liquid market and a transparent process.

The two new platforms, like the NSE, are self regulatory bodies registered under the Securities and Exchange Act 2007 of Nigeria, but are incorporated as public companies with shareholders and investors including financial institutions, the NSE through its subsidiary NSE Consult, and several others. While this is a welcome development, the regulators must ensure that the operation of the platforms do not create unfair advantages to its investors or develop a casino regime in the market which make returns and access uncertain or the process unpredictable. The platforms seem, however, to have commenced on sure footing by ensuring wide stakeholder participation in the process leading to their launch, and a deep governance structure given their announced corporate boards.

Indeed, the coming days seem to hold greater promise as the NSE works around opening a platform for trade in derivatives and several local and international players are gearing up for greater participation in the debt and equity capital market. Already, the International Finance Corporation has announced a plan to embark on a local currency denominated $1 billion dollar bond programme while pension funds are at an all time high of over N3 trillion ($18.6 billion) investable funds. In a country with an estimated $2.3 trillion infrastructure investment requirement and a burgeoning agricultural, power and real-estate sector with great potential but dire need for long term funds, the attempts at expanding and deepening the capital markets are a very welcome development.

Chuks Okoye

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