Archive for the 'FX' Category

Soaring trading on Nigeria’s FMDQ market for fixed income and fx

Nigeria’s booming fixed interest and currency securities exchange FMDQ OTC Plc (“over-the-counter” market) recorded market turnover of NGN93.9 trillion ($471.7 billion) for the 8 months to 31 August. This includes all products traded on the FMDQ secondary market as well as trade executed between dealing members, dealing members & clients, and dealing members & the Central Bank of Nigeria (CBN).

According to a recent report in Vanguard newspaper, treasury bills transactions accounted for NGN31.7trn (34%) of the total trading; repurchase agreement/buy backs were NGN21.354trn (23%) turnover; and foreign exchange (forex) NGN19.84trn (21%). The top 10 dealing members accounted for NGN67trn, 71% of the turnover; 3 dealing members accounted for NGN27.9trn (42%) of the broker trading.

Photo: FMDQ OTC

Photo: FMDQ OTC


Major listings in July included NGN26bn ($130m) FCMB Financing SPV PLC series 1, 7-year 14.25% fixed-rate unsecured bond under a ₦100trn debt issuance programme. This came after the listings of NGN4.8trn of bonds issued by the Federal Government of Nigeria (FGN) and quotation of NGN2.8trn of treasury bills. Other key listings have included a NGN30.5bn bond by UBA and a NGN15.54bn bond by Stanbic IBTC.

Other instruments traded in the 8 months to August:

  • Unsecured placements – NGN9.2trn
  • FGN Bonds – NGN6.1trn
  • FX Derivatives – NGN5.5trn
  • Money-market derivatives – NGN101bn
  • Eurobonds – NGN33bn
  • Other bonds – NGN18bn.

The figures exclude primary-market auctions in T-Bills, Bonds and FX.

According to CEO Bola Onadele Koko, revenue in 2014 was NGN1.75bn, compared to NGN155.65m in 2013, based on transaction income only for one month, December 2013. The bourse aims “to be No. 1 in Africa in the fixed income and currency markets by 2019”.

The FMDQ concept was promoted by the Financial Markets Dealers Association (FMDA) in 2009 and sponsored in 2010 by the Bankers’ Committee, chaired by the CBN with the Nigeria Deposit Insurance Corporation (NDIC) and all the banks and discount houses operating in Nigeria as its members. The committee resolved to set up a self-regulated organization licensed by the Securities and Exchange Commission (SEC) to operate all the over-the-counter inter-bank market activities in fixed income and currencies.

FMDQ was incorporated on January 6, 2011 with a NGN100m contribution by the CBN and equal contribution of NGN15m by each of the 25 banks and 5 discount houses to the company’s initial capital. On 6 Nov 2012, SEC registered FMDQ as an OTC securities exchange and self-regulatory organisation. It started operations a year later, 7 November, 2013.

By 31 Dec 2014 there were 26 FMDQ-licensed dealing members made up of banks and discount houses licensed to make markets in debt securities, money-market instruments and currencies on FMDQ. It was due to add specialist dealing members to deal in treasury bills and FGN Bonds. There were 13 licensed associate members, including SEC-registered inter-dealer brokers and brokers, as well as clients including institutional investors/asset managers, pension fund administrators and corporate treasurers.

From 2014 annual report

From 2014 annual report

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JSE launches futures trading for 3 African currencies

South Africa’s Johannesburg Stock Exchange (www.jse.co.za) has launched currency future instruments which will help investors and businesspeople looking to hedge against African currency movements. The 3 new currency futures are the first to track exchange rate between the rand (ZAR) and Nigeria’s Naira (NGN), Kenya Shilling (KES) and Zambia Kwacha (ZMW).
The move will allow investors, importers and exporters to protect themselves against the currency movement in the foreign country. The JSE has partnered with Barclays Africa and specialist brokers, Tradition Futures, to bring this new offering to market.
A press release from the JSE quotes Andrew Gillespie of Tradition Futures: “It is a groundbreaking development to have a transparent, independent, well-regulated platform to mitigate or assume FX (foreign exchange) risk in these African countries, against any other currency of their choice – that does not prejudice anyone, irrespective of size, domicile or nationality.

Representatives of JSE, Reserve Bank, Kenya and Zambia open trading in African currencies (credit: JSE)

Representatives of JSE, Reserve Bank, Kenya and Zambia open trading in African currencies (credit: JSE)


“The ability to transact anonymously, through specialist brokers such as Tradition Futures, and to have access to full and fair, timeous price discovery is an international benchmark requirement for a developed market. This allows for a level and fair playing field, where the best price is available to all, without bias or favour, which is a significant facet and feature of this market in African FX on the JSE.”

Guide to African currencies (see www.charterresource.org/african-currencies)

Guide to African currencies (see www.charterresource.org/african-currencies)


The JSE already offers futures against the ZAR in: USD (contracts of $1,000), Euro, Sterling, Australian dollar, Japan Yen, Canada dollar, New Zealand dollar, Chinese Renminbi, Swiss Franc, Botswana Pula and a couple of custom instruments. See the helpful brochure available here.

How they work
A currency futures contract is an obligation to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. For example, a futures contract can give an investor the right to buy USD at ZAR10 per USD1 at the end of December. One party to the agreement is obligated to buy (longs) the currency at a specified exchange rate and the other agrees to sell (shorts) it at the expiry date. A futures contract is therefore an agreement between two investors with different views on the way or extent a currency will move.
The underlying instrument of a currency future contract is the rate of exchange between one unit of foreign currency and the South African rand. The value of the futures contract moves up and down with this exchange rate – the level of the exchange rate determines the value of the futures contract. Currency futures contracts therefore allow participants to take a view on the movement of the exchange rate as well as to hedge against currency risk. Currency futures are used as a trading, speculating and hedging tool by all interested participants.
The new JSE futures contracts will provide the market participants with the ability to get exposure on the JSE to the exchange rate between the USD and the Zambian, Kenyan and Nigerian currencies through trading synthetic cross-currencies. For example, investors can get exposure to the exchange rate between the USD and the KES by trading both against the ZAR. To promote cross-currency trading the JSE will charge trading fees on only one of the foreign trade logs and not both.

Boosting African trade
The currency futures were launched on 3 October. The press release quotes Warren Geers, General Manager: Capital Markets at the JSE: “The JSE is very excited about this new groundbreaking initiative as we have been working on this strategy for 2 years. With Africa being a global investment destination it makes sense for the JSE as a major exchange player in Africa to be involved in providing appropriate products to mitigate currency risk and exposure when dealing in Africa.”
Trade statistics from the South African Revenue Service (SARS) show trade between South Africa and Nigeria totalled R34.4 billion, between South Africa and Zambia was nearly R18bn, and between South Africa and Kenya amounted to R4.6bn for for January-July 2014.

For more information, look at the currency futures details on the JSE website.