As an OTC Exchange positioned to bring revolutionary changes in the Nigerian debt capital, foreign exchange (FX) and derivatives markets, FMDQ OTC Securities Exchange (FMDQ or the OTC Exchange), in 2018, rolled out market development initiatives, with a focus on infrastructure/housing development, sustainable finance development, clearing and settlement solutions, new products development, financial markets education and capacity building, proprietary market system launch, amongst others, with key support from, and collaboration with market stakeholders and regulators.
The year was marked by significant activities/events, ranging from the launching and implementation of key activities and initiatives to the making of history in the Nigerian financial markets.
Some of these included but were not limited to:
Operationalisation of FMDQ Clear Limited: As part of its continued pursuit to strengthen the Nigerian financial markets, and in a bid to promote settlement finality on products traded, FMDQ commenced the year with the activation of its Clearing House – FMDQ Clear Limited (“FMDQ Clear”), the first central clearing house in Nigeria, a wholly-owned clearing and settlement subsidiary of FMDQ, to deliver highly efficient post-trade services across Nigeria’s fixed income and derivatives markets, addressing some of the key drivers for the development of the markets – risk mitigation, capital efficiency and price transparency, while ensuring safety, stability, confidence and ultimately, inclusiveness in the marketplace. FMDQ Clear, having assumed the responsibility of a critical financial market infrastructure (FMI) in the Nigerian financial market landscape, has commenced initiatives to ensure that its risk management activities underpin its effectiveness, reliability and long-term sustainability, as it strives to resolve key clearing and settlement issues that led to its birth.
Listing of the Pioneer Infrastructure Bond in Nigeria – ₦10.00 billion Viathan Funding PLC Power Bond: As part of its quest to unlock capital for infrastructural and economic development in Nigeria, FMDQ listed the pioneer infrastructure bond in Nigeria – Viathan Funding PLC ₦10.00 billion Series 1 10-year 16.00% Senior Guaranteed Fixed Rate under its ₦50.00 billion Bond Issuance Programme, making this the first-ever infrastructure bond to be issued in the Nigerian debt capital market (DCM) and listed on FMDQ.
Listing of the Pioneer Federal Government of Nigeria Roads Sukuk on FMDQ: In what was a historic event, the Federal Government of Nigeria (FGN), through the Ministry of Finance (MoF) and the Debt Management Office (DMO), in February, demonstrated its unrelenting commitment to the development of Nigeria’s infrastructure sectors via the Nigerian DCM, by listing on FMDQ, its first sovereign Sukuk in the Nigerian DCM, the ₦100.00 billion Federal Roads Sukuk Company 1 PLC 7-Year 16.47% Ijarah Sukuk due 2024.
Partnership with Financial Sector Development Africa and Climate Bonds Initiative: In its bid to revolutionise the Nigerian DCM into a world-class, properly functioning and globally competitive DCM, FMDQ, in March, formalised its strategic partnership with the Financial Sector Development (FSD) Africa (Kenya) and Climate Bonds Initiative (CBI) (United Kingdom), through the signing of a Cooperation Agreement to support the development of the Nigerian Green and non-Government Bonds markets for a period of three (3) years. This partnership stems from the growing global recognition of the role sustainability plays in strengthening financial stability and supporting overall economic growth in a nation.
Listing of the Pioneer Federal Government of Nigeria Green Bond on FMDQ: In the month of April, the FGN, through the MoF, Ministry of Environment (MoE) and the DMO, took a cue from other countries, by listing the first green bond in the Nigerian DCM – the Federal Government of Nigeria ₦10.69 billion Series 1 5-Year 13.48% Fixed Rate Bonds due 2022 – on FMDQ. This is yet another commendable feat for the FGN, with the MoF, MoE and the DMO, in their respective roles, addressing environmental challenges as well as championing development in the Nigerian DCM.
Partnership with Front clear to deliver First-class Clearing Structure in Nigeria: FMDQ, and its wholly-owned clearing and settlement subsidiary, FMDQ Clear, in May, partnered with Front clear, a Netherlands-based development finance company, through the signing of a Guarantee Fund Agreement, to jointly enhance FMDQ Clear with the support of a Settlement Guarantee Fund (SGF).
Launch of the Nigerian Green Bond Market Development Programme: FMDQ, in partnership with CBI and FSD, supported by the Securities and Exchange Commission (“SEC”) and Access Bank PLC, launched the Green Bond Market Development Programme, in June, to, among others, create awareness and drive education required to integrate the principles of green financing into the Nigerian DCM, thereby facilitating the establishment and development of the green bond market in Nigeria.
The Programme, more specifically, will support the development of guidelines and listing requirements for green bonds in Nigeria, develop a pool of Nigeria-based licensed verifiers to support issuers, facilitate engagement with extant and potential issuers and investors, and support broader DCM reforms that have/will have an impact on the non-government bond market in Nigeria.
Launch of FMDQ Q-ex Settlement Solution: FMDQ, with the critical and commendable support of the CBN and the FMDQ Dealing Member (Banks), successfully deployed a fixed income market Straight-through-Processing STP settlement solution through its Proprietary Market System – FMDQ’s Q-ex – a customised fully-integrated multi-asset trading system with attendant post-trade services capabilities. FMDQ’s Q-ex was integrated with the CBN’s Scripless Securities Settlement System (S4) to provide STP capabilities for efficient settlement in the fixed income market, improving the efficiency of the trading, reporting and settlement processes, whilst further developing, in no small measure, the Nigerian financial markets. FMDQ Q-ex provides an unrivalled means through which trades executed by its Members (currently the Dealing Member (Banks), are reported and subsequently settled, with minimal to no human intervention, via the respective channels.
Commencement of Co-branding Indices: FMDQ, in partnership with S&P Dow Jones Indices (SPDJI), the largest global resource for essential index-based concepts, data and research, and home to iconic financial market indicators (e.g. the S&P 500® and the Dow Jones Industrial Average®), in July, launched a co-branded fixed income index. The successful launch of the S&P/FMDQ Nigeria Sovereign Bond Index marked the activation of the inaugural co-branded indices with SPDJI. The S&P/FMDQ Nigeria Sovereign Bond Index, formerly branded as S&P Nigeria Sovereign Bond Index, tracks the performance of local currency denominated sovereign debt publicly issued by the government of Nigeria in its domestic market. A range of other S&P/FMDQ Fixed Income indices will be developed in due course.
Launch of FMDQ’s New Business Complex – Exchange Place: FMDQ, launched and opened the doors of its new office complex, Exchange Place, to its stakeholders in July. From Q-Hub, the well-equipped trading simulation room for the FMDQ Next Generation Financial Market Empowerment Programme; to a world-class media room for the efficient dissemination of market-impacting news and information about FMDQ and its markets; to the FMDQ Archives, a museum-style historical exhibit of key milestones achieved in the Nigerian financial markets, showcasing and preserving the markets and chronicles the history of FMDQ as an agent of change in the financial market from its beginnings in 2013 till date, Exchange Place is a suitable business complex which showcases FMDQ’s transparency agenda, digitalisation and positions FMDQ to perform its roles in the Nigerian financial markets more effectively.
Launch of FMDQ Next Generation Financial Market Empowerment Programme: FMDQ, also in July, launched its Next Generation Financial Market Empowerment Programme (FMDQ-Next), its flagship corporate responsibility programme, and a learning and development initiative aimed at promoting financial market awareness and literacy among students across all levels (primary, secondary and tertiary), as well as fresh graduates within the country, making financial market education accessible to students from different backgrounds, and empowering the next generation of Nigerian youth to be financially astute, ultimately adding value to their society in the future. The FMDQ-Next initiative is an expression of the FMDQ’s ongoing commitment to the community in which it operates, as the Programme will bolster the students’ academic abilities and help demystify the workings of the financial market at the early age, further enhancing their professional marketability and ability to positively contribute to society in the future.
FMDQ Welcomes British Prime Minister During Official Visit to Lagos: In the wake of a historic moment in the nation’s financial centre, Lagos – the visit of the British Prime Minister – FMDQ was most honoured to play host to the British Prime Minister, Ms. Theresa May, at its offices, Exchange Place, in August 2018. Ms. May visited Nigeria as part of her Africa tour to improve trade and investment relations between the United Kingdom and Africa.
FMDQ Receives Award for the Development and Transformation of the Nigerian Debt Capital Market: The OTC Exchange, in September, was honoured to win an award “In Special Recognition of FMDQ’s Contribution towards the Development and Transformation of the Nigerian Debt Capital Market” at the Capital Markets Correspondents Association of Nigeria (CAMCAN) Nigerian Capital Market Performance Awards 2018. The Award pays tribute to and validates FMDQ’s efforts towards revolutionising the Nigerian debt market and confirms that it lives true to its culture of innovation, through the implementation of forward-thinking initiatives for the development of a well-developed debt capital market in Nigeria.
FMDQ Hosts Maiden Investors’ Roundtable: Further to the launch of the Nigerian Green Bond Market Development Programme (“the Programme”) into the Nigerian DCM, FMDQ, CBI and FSD Africa conducted the maiden Investors Capacity Building and Training Session in line with the provisions and objectives of the Programme in the month of October. The Session provided a platform to build the required technical capabilities within the investor community to drive green bond investment decisions.
FMDQ Commemorates its Fifth Year Anniversary: FMDQ, having sustained its commitment through the years to transform and make the Nigerian financial markets GOLD -Globally Competitive, Operationally Excellent, Liquid and Diverse – with the invaluable support of its stakeholders, turned five (5) on November 7, 2018. To commemorate the five (5) years anniversary, the Exchange embarked on a week-long series of commemoration activities, commencing with a visit to one of its strategic media partners, BusinessDay Media Limited, followed by an Anniversary Reception at its business premises, Exchange Place, which played host to national icons, financial market doyens, market participants and its employees. During the week, FMDQ also conducted its inaugural Staff Leadership Development Series (SLDS), which is aimed at enhancing staff leadership capacity and competencies, and was kickstarted by Mr. Fola Adeola, MFR, an industry captain whose experience and wealth of knowledge is undoubtedly exemplary; and ended the week with a Media Parley, where it hosted media professionals in the Nigerian capital market.
FMDQ Hosts Inaugural GOLD Awards: FMDQ introduced and hosted the Inaugural FMDQ GOLD Awards, a first of its kind in the Nigerian fixed income, currencies and derivatives markets, geared at recognising the commitments and invaluable contributions of FMDQ’s market participants and stakeholders who have contributed towards the growth and development of the markets. Details of the nomination categories, nominees and award winners, amongst others can be found on https://www.fmdqotc.com/goldawards/
Launch of the Dealing Member Specialists Market: Following its long-time agenda to foster market integration, improve network effects and promote liquidity in the Nigerian financial markets, FMDQ launched a new market – Dealing Member (Specialists) (DMS) Market – for stockbrokers to trade fixed income securities with banks in the Nigerian DCM in December 2018. This unprecedented market development initiative comes on the back of the fragmentation identified in the Nigerian fixed income market and provides seamless integration of the fixed income inter-bank market, generates additional liquidity to the Nigerian fixed income market and serve as an avenue for effective and efficient retail participation in this market. The DMS category is a subset of the FMDQ Dealing Member category and is made up of securities dealers, including investment banking firms, securities trading/stockbroking firms and OTC fixed income dealers licenced to make market in all fixed income products admitted for trading on the FMDQ platform.
Other Market Development Initiatives
In addition to its market development activities, over the course of the year, FMDQ admitted the listings of fifteen (15) bonds with a total value of N315.52 billion. The OTC Exchange also admitted the quotations of sixty (60) commercial papers (CPs) with a total value of N505.30 billion. By their admission to the FMDQ platform, these securities have gained access to the full complement of the unsurpassed FMDQ Listings and Quotations Service, which includes, but is not limited to, improved secondary market liquidity, efficient listings/quotations process, unprecedented transparency and information disclosure, global visibility and improved network effects.
Whilst the year came with its fair share of challenges for FMDQ’s markets, the markets experienced a steady development, with growth primarily driven by trading activities in the Treasury bills (T.bills) and FX markets. In all, the total over-the-counter (OTC) market turnover saw a year-on-year growth rate of 28.74%, rising from the N142.03 trillion recorded in 2017 to in N182.86 trillion 2018.
Trading activities in the T.bills market contributed the largest to overall turnover, accounting for 39.44% of the total market turnover, whilst FX transactions (including FX derivatives) followed with a combined share of 37.04%, and Repos/Buy-backs accounted for 16.50%. Bonds and Money Market transactions (including Unsecured Placement & Takings, Commercial Papers and Money Market Derivatives), on the other hand, had smaller shares of the market, accounting for 6.55% and 0.47% respectively. This turnover represents trades executed among Dealing Members, Dealing Members & Clients, and Dealing Members & the Central Bank of Nigeria (CBN).
Outlook for 2019
Having delivered value-adding initiatives and solutions in line with its 2018 strategic focus – Market Diversification, FMDQ, leveraging on the effective support and collaboration of its stakeholders remains committed to continue working assiduously, in 2019, to deliver innovative and key market development initiatives, including but not limited to:
- Introduction of new derivatives products to the financial market landscape, and expansion of the Nigerian derivatives market
- Activation of new products such as repurchase agreement (Repo) with collateral management service
- Full operationalisation of the DMS Market to further enhance market integration and retail participation in the fixed income markets
- Infrastructure/Housing development
- Sustainable Finance development
- Development and launch of new/co-branded indices
- Financial market education and capacity building for its stakeholders through FMDQ Academy