The Chartered Institute of Stockbrokers has approved the plan by the Nigerian Stock Exchange to initiate trading in derivatives.
Mr. Oscar Onyema, Chief Executive Officer, NSE disclosed on June 22nd, 2015, that the exchange would commence trading in naira futures in 2017 in order to help investors hedge against movements in the local currency.
“It would be awesome if we had a naira-dollar contract that we could trade on the exchange,” He stated this in an interview in London where he participated in an investor roadshow at the London Stock Exchange Group.
In Reaction to the plan, the Registrar and Chief Executive Officer, CIS, Mr. Adedeji Ajadi, described the planned introduction of derivative trading as a welcome and long-anticipated development.
Ajadi said that currency derivatives are highly proficient risk management instruments. They also give options for hedging, speculation and leverage. Trading in derivatives will augment the capacity of market participants to minimise their risk, take advantage of mis-pricing of assets and potentially make more profits from the capital and money market.
In addition, he said the planned introduction of currency derivatives (naira-dollars options or futures by the NSE is a welcome development that the market has anticipated for quite some time. He believes local and foreign investor alike would be thrilled about the positive development.
According to the report, derivatives are derived from underlying instruments such as bonds, stocks, and commodities. There are other categories of underlying instruments such as weather and emission. The prime objective of trading in derivative instrument is to hedge against risk.