CIS backs NSE’s plan to promote currency derivatives

The Nigerian currency, Naira

The Nigerian currency, Naira

THE Chartered Institute of Stockbrokers (CIS) has stated that currency derivatives are very efficient risk management instruments, even as the institute applauded plans by the Nigerian Stock Exchange NSE to commence trading in derivatives.

The NSE’s Chief Executive Officer, Oscar Onyema announced recently that the Exchange would commence trading in Naira futures in 2017 in order to help investors hedge against movements in the local currency.

The Registrar and Chief Executive Officer of CIS, Adedeji Ajadi described the planned introduction of derivative trading as a welcome development and long anticipated.

Ajadi explained that currency derivatives are strong components of risk management and potential instruments for creating liquidity either on an organised exchange or Over-the Counter (OTC) market.

“ Currency derivatives are very efficient risk management instruments. They also provide alternative options for hedging, speculation and leverage. Trading on derivatives would enhance the capacity of market participants to minimise their risk, take advantage of mis-pricing of assets and potentially make more profits from the capital and money market”, Ajadi said.

Onyema had at a recent interview in London noted that it would be a welcome development if the Exchange could trade Naira-Dollar denominated contract. “Futures and options cotracts are asset classes that would be beneficial to foreign investors. The bourse might offer some futures by the end of 2017.

Ajadi explained that the proposed trading in derivatives would deepen the market as a whole since it has capacity to widen the variety of instruments and contracts that can be traded. “Therefore, the planned introduction of currency derivatives (Naira-Dollars options or futures by the NSE is a welcome development that the market has anticipated for quite some time. I believe local and foreign investor alike would be excited about this positive development”. he said.

Derivatives are derived from underlying instruments such as stocks, bonds, and commodities. There are other categories of underlying instruments such as weather and emission. The overriding objective of trading in derivative instrument is to hedge against risk. 

The Exchange had for long been working on the introduction of trading in derivatives, regarded as highly sophisticated. It is expected that The Exchange hires experts to drive trading in these asset classes, train its relevant staff, expose both stockbrokers and the financial press to the new risk management system because it has a huge potential risk and return.

Derivatives trading are one of the major courses for qualifying as a chartered stockbroker through the CIS.

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