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The Nigerian financial markets have recorded a ground-breaking and game-changing milestone following the successful registration of FMDQ Clear Limited by the Securities and Exchange Commission to become Nigeria’s premier Central Counterparty.
FMDQ in a statement made available to newsmen on Tuesday noted that as a critical and much needed Financial Market Infrastructure, the development re-defines the landscape for financial transactions as it is known and introduces endless possibilities to the scope of permissible products that can be developed and deployed within the ecosystem towards delivering long-lasting prosperity to the Nigerian economy.
“The FMDQ Clear CCP ushers the actualisation of the outstanding building block that will enable the development of thriving repurchase agreements, derivatives, and commodities markets in Nigeria like other developed economies and markets.
“As a critical FMI, FMDQ Clear, as a CCP will interpose itself between two counterparties by becoming the buyer to every seller and seller to every buyer, thereby aggregating and consolidating counterparty risks and introducing the much-desired counterparty agnostic trading feature that will catapult the growth of trading liquidity of financial products in the Nigerian markets to international standards.
“In addition, the CCP, with its robust risk management structures and financial resources, is able to manage the consolidated risks in an operational-, cost- and capital-efficient manner that unlocks value for market participants within its value chain,” the statement read.
The SEC, having actively engaged with market participants for several years on the requisite regulations, robust and world-class “Rules on Central Counterparty” were published in December 2019.
This set the regulatory environment for the establishment of a CCP.
However, the final piece on FMDQ Clear’s aspiration of evolving into a full-fledged and sustainable CCP was then the legal basis to support its planned activities – netting and bankruptcy remoteness of financial market transactions.
This required legislation, in another revolutionary event for the Nigerian markets, was addressed by the repeal and re-enactment of the Companies and Allied Matters Act, 1990 (CAP C20, LFN 2004) as Companies and Allied Matters Act 2020 into law on August 7, 2020.
Particularly, this new Act, which is positioned to set the Nigerian economy on the path of remarkable growth, made provisions for netting and bankruptcy remoteness.
The game-changing provisions will cure critical legal deficiencies that hitherto affected the development of the financial markets, the statement said.
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