NG Clearing Limited and AFEX Commodities Exchange Ltd Set to Unlock the Potential of Commodity Derivatives in Nigeria .
AFEX, Africa’s leading commodity exchange, and NG Clearing Limited, West Africa’s premier Central Counterparty, have signed an agreement to develop the infrastructure that facilitates trading and central clearing of futures contracts for commodities such as cocoa, paddy rice, maize, and soybean in Nigeria.
The signing ceremony held on Wednesday November 9, 2022, in Lagos, Nigeria. Ayodeji Balogun, the CEO of AFEX, and MR. Tapas Das, the CEO of NG Clearing represented their companies respectively. The signing ceremony formalizes the commencement of a partnership aimed at transforming the agricultural value chain.
The agreement is a precursor to the development of technological infrastructure and the introduction of commodity futures in Nigeria. AFEX’s commodity exchange will serve as the trading venue while NG Clearing will serve as the Central Counterparty that guarantees the settlement of trades.
Currently, trading commodities such as cocoa, maize, paddy rice, and others are limited to the spot and OTC markets. The spot and OTC market exposes market participants to frequent price movements and counterparty risk. With the futures market, participants can lock in prices and positions of various commodities ahead of time without facing the risk of default by a counterparty.
Beyond helping market participants mitigate price risk, the commodity futures market will deepen the financial system while acting as a catalyst for the continued development of the agricultural sector.
Speaking at the ceremony, Ayodeji Balogun highlighted the significance of the agreement in light of AFEX’s mission of being a reference point for commodities in Africa. He said that ” we share a drive with market regulators and other players in Nigeria’s capital market to deepen the market and unlock financing options and alternative investment classes for players in the commodities ecosystem. This collaboration with NG Clearing is a new leap for the financial market in the country that further opens opportunities for generating shared prosperity through the commodity market. We believe that this would further position the country as a preferred capital destination with a viable path of effectively managing risks in key sectors of the economy.”
Mr. Taps Das of NG Clearing said that ” this partnership with AFEX will usher in a new phase in the development of Nigeria’s financial and agricultural sectors. As the central counterparty, we bring confidence and trust to the market as we will be guaranteeing the execution of the trades through our resilient collateral management processes.”
Mr. Ayokunle Adaralegbe, the Chief Operating Officer of NG Clearing Limited also mentioned that “by ensuring the right infrastructure is in place, we are an enabler of growth for the derivatives market and the economy as a whole. We are proud of this collaboration and confident it will unlock the untapped potential of commodity derivatives in Nigeria.”
The agreement between AFEX and NG Clearing comes at a time when unlocking value in Nigeria’s agricultural sector is at the front burner of government initiatives.
The AFEX market turnover currently stands at N123.72 billion while NG Clearing earlier facilitated the introduction of equity index derivatives in April 2022, serving as a Central Counterparty to the NGX Exchange.
About NG Clearing Limited
NG Clearing Limited (“NG Clearing”) is West Africa’s premier central counterparty (CCP) and serves as a market-wide financial market infrastructure (FMI) in Nigeria. The Company was incorporated in May 2016. In September 2020, the Company received an approval-in-principle from the Securities and Exchange Commission (SEC) to provide CCP services in Nigeria, and final approval was issued by the SEC in June 2021. The establishment of NG Clearing is in line with its strategy to support the growth and development of the Nigerian capital market as the “gateway to African Markets”. The establishment of NG Clearing will position the Nigerian capital market as a leader amongst emerging markets by facilitating greater market transparency, increase trading volumes, and overall improvement in the efficiency and competitiveness of the Nigerian capital market. NG Clearing will also pave the way for the smooth introduction of exchange-traded derivatives and other financial instruments in the market, by delivering best-in-class post-trade services that manage counterparty credit risk and reduce systemic risk in the Nigerian financial system.
What a CCP Entails
A central counterparty is a critical financial market infrastructure that facilitates the clearing and settlement of derivatives and other securities as well as the management of counterparty credit risk.
AFEX harnesses Africa’s commodities and talent to build shared wealth and prosperity. Its infrastructure and platform investments work to unlock capital to power a trust economy in Africa’s commodities markets. Since its inception in 2014, AFEX has developed and deployed a viable commodities exchange model for the West African market and is on track to impact one million producers: providing services in productivity and value capture and access to finance and markets.
By deploying an efficient market system, the company will facilitate trade with Africa worth over USD500 million in the next five years. AFEX’s vision is to be the reference point for commodities in Africa. To achieve this goal, AFEX looks to introduce products that de-risk the sector and drive financial inclusion for rural communities.