FMDQ partners Frontclearto establish Central Clearing House

FMDQ OTC Securities Exchange (FMDQ) has disclosed its partnership with Frontclear Management B.V. a global development finance company towards developing a comprehensive feasibility and structuring plan for the establishment of an over-the-counter (OTC) Central Clearing House (CCH)

To achieve this, the FMDQ revealed that a consulting company, Catalyst Development (UK) Ltd, has been appointed to facilitate the feasibility study.

FMDQ prides as a change agent in the Nigerian financial market space and continually working to support the development of the market through its “GOLD” (Global Competitiveness, Operational Excellence, Liquidity and Diversity) Agenda.

FMDQ in a statement, said that towards attaining the objective of establishing a CCH and in preparation for feasibility study, a stakeholder engagement workshop was held in Lagos on March 2, 2017, to chart the journey towards the conceptualization, development and delivery of a world-class CCH.

The approach, the OTC exchange said is to set up a credible OTC CCH, in the short-to-medium term, to start deriving the benefits of central clearing for instruments traded either as spot or derivatives on FMDQ, while pursuing the adoption of global standards required for the establishment of a Central Counter Party (CCP) system in the long-term.

This further reinforces FMDQ’s capacity as a market organizer remaining resolute in commitment to its operational mandate of aligning the markets within its purview to international standards and working to ensure they emerge as globally competitive, operationally excellent, liquid and diverse

According to the FMDQ report, participants at the pre-feasibility study workshop, were of the consensus that establishment of a credible OTC CCH will aid FMDQ, as a securities exchange, to not only safeguard the OTC markets and FMDQ’s Dealing Members from losses that may arise from counterparty risk, but also ensure certainty of trade settlement, finality and enforceability; manage defaults among Dealing Members by guaranteeing settlement of trades.

Establishment of the CCH, the stakeholders maintained would ensure orderly markets in periods of stress; increase liquidity of products traded on the OTC Exchange and promote market confidence among participants by retaining market stability and inclusiveness.
The OTC exchange CCH, stakeholders said will also increase efficiency of capital utilisation especially for Dealing Member (Banks); and ensure real-time assessment and valuation of counterparty exposure through seamless integration of the OTC CCH system with FMDQ’s trading system, amongst others.

They further agreed that there is a need to accelerate the journey to deliver this crucial market infrastructure, as the benefits are crucial for the development of the Nigerian OTC markets.

Representatives of the Central Bank of Nigeria applauded this innovative initiative and reassured the participants of their support, whilst requesting for a speedy implementation of the recommendations of the workshop.
Being Africa’s largest economy, the development of the Nigerian financial markets is crucial, with improved market architecture, increased requirement for bespoke derivatives hedging products and regulation as key drivers for this development.