FMDQ Group has disclosed that total value of Over-the-Counter (OTC) foreign exchange (FX) futures traded on its platform rose to $47.32 billion in four years; a development it stressed has supported the Central Bank of Nigeria (CBN) in tackling challenges in the FX market.

FMDQ disclosed that the product, which was launched in 2016 following almost two years of major challenges in the FX market, has been successfully traded on FMDQ Securities Exchange Limited (FMDQ Exchange), and cleared on FMDQ Clear Limited (FMDQ Clear) – both wholly owned subsidiaries of FMDQ Group.

In a report, FMDQ disclosed that the OTC since its inception last year saw a significant increase in participation levels from hedgers, with total value of OTC FX Futures Contracts of $18.88 billion from 1,726 deals in 2020, up from $15.07 billion from 1,068 deals in 2019.

Also, it reported total value of OTC FX Futures Contracts of $7.88 billion from 671 deals in 2018 and $5.49 billion from 613 deals in 2017.

The group reflecting on the market performance last year, said it was undoubtedly challenging, with the outbreak of the COVID-19 pandemic, and the attendant turbulence in the global and domestic economic landscapes.

The National Bureau of Statistic (NBS) had disclosed that the nation’s Gross Domestic Product (GDP) recorded a contraction of 1.79per cent in 2020, a significant decline from the 2.21per cent growth recorded in 2019, inflation rate of 13.25 per cent compared to 11.40per cent in 2019, and a trade deficit of $33.46 billion, a 33.77per cent increase from the deficit of $25.01 billion in 2019, plunging the nation’s economy into its second recession in two years.

The report, thus, stated that the fortunes of the Nigerian financial markets were not spared in 2020 as activities in the FX market remained constrained by reduced liquidity and volatile capital flows, leading to market contraction.

FMDQ in the report explained that the capital market saw investors access the fixed income market to avoid losses in equity portfolios, but by mid-2020, the fixed income market took a turn as yields started tumbling to below one per cent per annum, and the equity market picked up in the last quarter of 2020 as investors surged back in.
It explained further that, as corporates and investors were faced with very difficult choices during the period, many found succour in the CBN’s innovative Naira-settled OTC FX Futures product, a panacea for the foreign exchange rate risk faced by market participants – domestic and international.

Meanwhile, an analysis of FMDQ Group’s financial performance shows that its market diversification strategy was successful, as the Group recorded an increase of 44per cent in Revenue, to N31.00 billion, in 2020.
Total market activity in the fixed Income, currency and derivatives markets declined marginally by circa eight per cent to N215.09 trillion in 2020 from N232.68 trillion in 2019, with the most actively traded product category – Nigerian Treasury Bills & Open Market Operation (OMO) Bills – contributing a combined total of 35per cent to total turnover.

The report disclosed further that: “The Securities Admission business of the Exchange continued to thrive in 2020, as an impressive number of 82 securities – 13 Bonds, 67 Commercial Papers and 2 Funds – were admitted on the platform, with a total value of N2.07 trillion.

“In the Clearing business, owing to the impact of the COVID-19 pandemic that inadvertently shaped the course of the year, a decline of 22per cent in the value of cleared sovereign fixed income securities transactions was recorded by the Group. On the other hand, as corporates and investors sought relief from the volatilities experienced in the market, there was a marked increase in OTC FX Futures participation levels, as total value of contracts executed by local and foreign corporates on FMDQ Exchange and cleared by FMDQ Clear grew by 25.25per cent. The Depository and Private Markets business also contributed, albeit marginally, to the Group’s Revenue during the period under review.”

The Group Chairman, FMDQ Group, and Deputy Governor, Economic Policy, CBN, Dr. Kingsley Obiora, in a statement stated that despite the challenges: “2020 was a landmark year for FMDQ, as it saw the Company’s reorganisation into a Group structure, with FMDQ Group becoming a non-operating Holding Company registered by the Securities and Exchange Commission (SEC), with three SEC-registered capital market subsidiaries – FMDQ Exchange, FMDQ Clear and FMDQ Depository – and a private markets subsidiary, FMDQ Private Markets, all further consolidating our business model, transforming FMDQ to Africa’s first vertically integrated FMI group.”

Commenting, the Chief Executive Officer, FMDQ Group, Mr. Bola Onadele. Koko said: “I am incredibly proud of the progress we made in 2020, and we would never have achieved this without the unwavering support of all our stakeholders. As the pandemic strained our economy and markets during the year, the level of engagement by our stakeholders testified to their commitment to making our markets thrive. The support of the SEC – the apex regulator of the capital markets, and the CBN – the apex bank, has been invaluable and is extremely appreciated.

“Also, the unrivalled support of the Board Chairman and Directors cannot be overemphasised and has been critical to the achievements and progress made during the year. Your exemplary leadership, trust, and determination to steer the ship with utmost care, during the turbulent year, despite your busy schedules, was nothing short of remarkable, as evidenced by the Corporate Governance and Board Evaluation Reports from our external consultant, PricewaterhouseCoopers (PwC), upon their conclusion of the 2020 reviews in accordance with the SEC’s Corporate Governance Guidelines, 2020, and the Nigerian Code of Corporate Governance, 2018.”