FMDQ Group has listed priorities to be pursued by the company in 2022 to enhance the growth and development of the fixed income markets.
Ms Kaodi Ugoji, Group Chief Operating Officer, FMDQ Group, said the top priorities were the launch of the Bilateral Repurchase Agreement (Repo) market with collateral management service and development of a thriving derivatives market.
She said the imminent introduction of exchange-traded derivatives products, starting with fixed income furtures products also ranked as priority.
Ugoji told the News Agency of Nigeria (NAN) on Tuesday in Lagos that the company would ensure immediate activation of FMDQ Clear’s CCP services for financial market transactions (cash and derivatives).
She added that the company would extend the FMDQ Depository services to new asset classes and customer segments.
She said the FMDQ Securities Exchange Ltd. initiated Repo with Collateral Management Project to promote liquidity in the money markets and deepen the Nigerian fixed income markets.
Ugoji noted that the “Repo Project” would focus on enhancing/standardising the Repo market in Nigeria by facilitating on-system trading/reporting of Repo.
She said it would also focus on the introduction of centralised collateral management and straight-through-processing settlements to minimise counterparty risk.
She said the Repo project, when launched, would promote liquidity in the secondary fixed income markets; provide a low-risk option for short-term cash investment and promote price discovery in the money market, among others.
Ugoji added that the group would deepen the private markets and improve supply chain financing to support small and medium-sized enterprises.
Speaking further, she said the company would introduce Exchange-Traded Derivatives (ETD) in the course of the year.
“The introduction of the FMDQ Exchange-Traded Derivatives (“ETD”) Market is being planned with Federal Government of Nigeria Bond and Short-term Interest Rate Futures contracts as the pioneer ETD products,” she said.
On overview of fixed income market activities in 2021, Ugoji said the total turnover in the fixed income market for full year 2021 was N140.74 trillion against N146.88 trillion achieved in 2020, representing a year-on-year decrease of 4.18 per cent.
“Money Market (mainly Repurchase Agreements [Repos]) (35.61 per cent) and Open Market Operation (“OMO”) Bills (27.79 per cent) were the highest drivers of fixed income market turnover.
“This jointly accounting for 63.40 per cent of the total fixed income market turnover for FY2021,” she said.
She explained that following engagements with market participants, the decline in fixed income market activity might be attributed to CeBN’s implementation of the cash reserve ratio.
This, she said, impacted the liquidity and volatility in fixed income market yields.
“The volatile fixed income market evidenced in the uptick in FGN Bond yields in 2021 (average increase of 2.11ppts), led market participants to maintain a ‘wait and see approach’ to avoid realising losses on fixed income securities,” she said.