By Omodele Adigun
As NG Clearing kick starts exchange-traded derivatives, the Central Bank of Nigeria (CBN) has advocated for the creation of exchange-traded derivatives that would allow counter parties hedge climate-related risks.
According to its Deputy Governor in charge of Financial System Stability, Mrs Aisha Ahmad, who made the call in her online goodwill message at the launch of NG Clearing Central Counterparty (CCP) business line Thursday in Lagos, this is to give fillip to the transition to carbon neutral economy by 2060.
Mrs Ahmad lamented that the climate change is the most difficult risk facing the world today with a potential to create existential threat to financial system. She, therefore, urged the derivative market to play a role in its mitigation.
Her words: “Permit me to touch on what has taken a centre stage in the recent global discussion, climate change. This is arguably, the most difficult risk facing the world with a potential to create existential threat to financial system. The financial market, particularly, the derivative market would be expected to play a critical role in the pursuit of just transition to carbon neutral economy by 2060. There are still roles for innovation, and creation of a climate-related derivative products that would allow counter parties hedge climate-related risks. “The NGX must also actively request for adequate disclosure of climate-related and ESG (Environmental, Social & [corporate] Governance)-related issues and support initiatives to promote financial and operational sustainability in listed companies.” As for the NG Clearing, she predicted that its CCP would accelerate the growth and development of the Nigerian capital market, and position it as a gateway to the African trade.
She stated: “Nigerian financial system, indeed capital market, has evolved quickly over time with significant changes in market depth, variety of financial instruments and type of participants, while business models have been transformed due to digitization and technological innovation. NG Clearing has chosen to launch the CCP at a very auspicious moment, considering the increased focus on intra and inter African trade, the African Continental FreeTrade Area (AfCTA) and the pan African payment and settlement system. All of which rquire robust and fully developed payment, financial system and capital market to thrive.
“NG Clearing CCP services should enhance prospect for both deepening the capital market to the introduction of Clearing platform for derivatives, commodities and other financial instruments, and ensuring a strong and ready market offering better protection to all participants. Investors should see many benefits that are not readily available in the OTC trading system such as increased liquidity, reduction of default risk, trade transparency and improved efficiency and competiveness as products are progressively developed to help diverse risk exposures.
“The plan for CCP to cover Exchange Traded commodities instruments is remarkable as it will aid the commodity trading market in Nigeria.
While regulators support innovations that address the needs of the market, we must be vigilant for the risk to preserve financial stability, protect and promote market integrity and robust investor confidence.”