Nigerian Futures

Nigeria Bourse Pursues Course Towards Derivatives Trading

The bourse is particularly focused on plans to trade naira futures, which would allow investors to better manage risk.

The Nigerian Stock Exchange aims to start trading derivatives such as futures and options in interest rates, currency and equity indexes by 2016, according to Bloomberg. Currently, its trading offers are limited to shares, bonds and exchange-traded funds.

The bourse is particularly focused on plans to trade naira futures, which would allow investors to better manage risk, hedging around the Nigerian currency’s volatility.

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“It would be awesome if we had a naira-dollar contract that we could trade on the exchange,” Chief Executive Officer, Oscar Onyema said in London on Monday, according to Bloomberg. “Futures and options are asset classes that we think would be very beneficial to foreign investors.”

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Indeed, the plummeting prices of Brent crude oil, which accounts for up to 90% of the West African nation’s exports, has placed pressure on the currency, which has dropped by 18% against the dollar in the past year.

As such, the Nigerian Central Bank imposed restrictions on the naira in late 2014 to curb the weakening currency in Africa’s biggest economy. This has prompted investors to call for a loosening of controls. Only last week the Central Bank called a meeting with chief executives and treasurers of commercial lenders to discuss issues surrounding its policy on the foreign exchange market.

Indeed, London-based analyst for Africa at Standard Chartered Bank, Samir Gadio said in a chat with THISDAY: “International investors are eager to come back to the Nigerian debt market, but the main constraint remains the exchange rate level. The overwhelming majority of portfolio investors would like to see a higher and more sustainable exchange rate equilibrium as well as a move back to a price-driven forex trading platform.”

At the same time, the stock exchange is also considering changes to its ownership in a bid to improve governance and raise funds for expansion, which includes plans to set up a clearing house.

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