NG Clearing debuts to address systemic risks in capital market

NG Clearing Ltd was officially launched on Thursday as the first Central Counterparty (CCP) in West Africa to address systemic risks, ensuring capital market integrity and standardise exchange traded derivatives.

Players in the Nigerian capital market ecosystem at the launch of NG Clearing, in Lagos, said that CCP Company would promote transparency and efficient settlement in the market.

The Director-General, Securities and Exchange Commission (SEC), Mr Lamido Yuguda described the launch as one that would deepen the market.

Yuguda said: “It is an historic day for the entire capital market of Nigeria as the services of NG Clearing will help in deepening the market and placing it on the right path in achieving its required sophistication, dept and breathe in terms of product offerings.

“The main function of a CCP is the management of counterpart risks by interposing itself between counter parties contracts traded in one or more financial markets.

“These counter parties are those that are able to transfer unwanted market risks for a fee to market participants but want to assume them.

“These and other risk management strategies make the CCP a systematically important financial market infrastructure, as it helps in the reduction of systemic risks in financial markets,” he said.

According to him, as the Nigerian capital market grows in size, depth, sophistication and liquidity, the regulatory role of SEC becomes even more relevant, the overriding responsibility of the commission is to protect investors.

Yuguda assured the commission’s readiness to provide the necessary regulation to support all stakeholders of the Nigerian market and enjoined them to think innovatively on best ways to leverage the capital market for the nation’s socioeconomic advancement.

The Managing Director/Chief Executive Officer, NG Clearing, Mr Tapas Das, in his welcome address said that the CCP was borne out of the need to protect financial markets from the aftermath of economic meltdown of 2008.

Das recalled some of the scenarios that informed the CCPs, the global melt down in 2008 which crashed markets with unprecedented losses.

“Central counter party is basically a financial market infrastructure that interposes between a buyer and a seller and ensures the settlement is guaranteed.

“The goal is to reduce systemic risks, promote market integrity and protect financial market from some of the events that led to the crisis in 2008.

“With Nigerian capital market poised to advance produces, it is only ideal to establish a CCP in line with global best practices and hence the emergence of NG Clearing.

“Our mandate is to afford stability and safety of the market place through efficient and timely settlement of any trade that we are mandated to care and to strengthen the country’s investment environment through solutions that systematically reduces risks,” he added.

Dad also noted that CCP would enhance operating efficiency and minimise cost of all market participants thereby contributing to national development.

The Chairman of NG Clearing Board of Director, Mr Oscar Onyema in his address, said the launch of the company was to drive its commitment to position the Nigerian capital market as a stable and resilient market offering local and foreign investors’ sound opportunities.

“Today’s event is an epochal milestone, one whose relevance and impact will evaporate across the financial system. The launch marks an era we have earnestly looked forward to, an era of clear possibilities and opportunities.

“The NG Clearing dream was borne out of a commitment to position the Nigerian capital market as a stable and resilient market that offers local and foreign investors sound opportunities without compromising on global standards.

“On this premise, we took steps to identify the gaps that inhibit our market from attaining this positioning. One of the gaps was the absence of the financial infrastructure known as the CCPs.

“With the launch of NG Clearing, the long awaited dream in the exchange traded derivatives in our capital market has now become a reality. NG Clearing was incorporated in 2016 after conducting a feasibility study.

“To determine whether the Nigerian capital market was ready for derivatives trading and earnestly started working toward putting in place the required legislative, regulatory, technical and operational frameworks to facilitate the proper working of a CCP in Nigeria,” he said.

According to Onyema, these efforts culminated in the final approval of the SEC earlier this year. We have also worked with players in the ecosystem, to build capacity and prepare them for derivatives trading.

He said having a CCP would boost local and international investor confidence while identifying some challenges faced.

Onyema said the biggest challenge was the gap in legislation, but thanked the legislators for enacting the CAMA 2020 and other legislations that allowed the companies to achieve their current stance.

The Chairman of the House Committee on Capital Market, Hon. Babangida Ibrahim, said: “We are witnessing a paradigm shift in the nation’s financial service sector, the formal launch of NG Clearing Central Counter Party Service in the Nigerian capital market.

“Being the first central counter party in West Africa and the first exchange traded derivatives in our capital market, it will open opportunities to investors, stakeholders and other players in our capital market. It will equally manage the counter party risks, reduce systemic risks and promote integrity of our capital market,” he noted.

The Chief Executive Officer, Nigerian Exchange (NGX) Ltd., Mr Temi Popoola, said that the financial market infrastructure landscape in the last decade had changed considerably, driven by technology, globalisation and regulatory change.

“We are pleased that the NGX is part of history being made today in the Nigerian and West African capital markets.

“As a multi asset exchange, the NGX recognises the importance of a well-developed derivatives markets, consequently, we have worked assiduously to build a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital.

“NGX has developed the right regulatory and technology framework and competence required to support the launch of a standardised exchange traded derivatives market.

“Our adoption of the best in class central counter party clearing house, further engenders the confidence in the derivatives market among market participants, as the clearing infrastructure provided will be of international standard capable of reducing systemic risks,” he said.