The Central Bank of Nigeria (CBN), has directed all banks wishing to participate in the Over-the-Counter (OTC) trade settlement to pledge N1 billion collateral towards the scheme.
The apex bank explained in a circular by Dr. Alvan Ikoku, the Director of Financial Markets Department, that the goal was to enhance efficiency in trading and post-trade activities and build confidence in the financial markets.
“Ikoku, however, warned that the banks that lack capacity to make provision for the pledge or failure to top up a pledge when required would result in their exclusion from the exercise.”
In a related development, the Securities and Exchange Commission (SEC) has registered FMDQ Clear Limited as the first central clearing house in the country.
A statement from FMDQ OTC Securities Exchange said the wholly owned clearing and settlement subsidiary would promote settlement finality on products traded.
“As part of its continued pursuit to strengthen the Nigerian financial markets, and in a bid to promote settlement finality on products traded, FMDQ activated the Clearing House to deliver highly efficient post-trade services across Nigeria’s fixed income and derivatives markets, and addressing some of the key drivers for the development of the markets including– risk mitigation, capital efficiency and price transparency, while ensuring safety, stability, confidence and ultimately, inclusiveness in the marketplace,” the company said.
“To ensure a full understanding of the needs of the market and its readiness for growth and development, FMDQ, in 2015, engaged Salonica, an international-based consortium, to conduct a feasibility study on the introduction of OTC derivatives to the Nigerian financial market, and one of the strong recommendations of this study was the activation of a clearing house to ensure certainty of settlement finality and enforceability; promote market confidence among participants, and facilitate orderly markets in periods of stress.