Nigeria hails significant progress in market infrastructure development

The CSCS, the Nigerian Central Securities Depository (CSD) has said the country’s progress towards the creation of a central counterparty clearing house (CCP) is well underway.

This comes as a number of African economies have made enormous in-roads in developing their market infrastructures to facilitate foreign investment. Many countries, for example, are in the process of creating CSDs as foreign investor interest in frontier markets continues to grow.

Kyari Bukar, chief executive officer at CSCS, speaking at NEMA Africa in London, said the CCP’s implementation in Nigeria should be partially underway by 2016, clearing fixed income derivatives and other products. However, the CCP will not yet clear equity derivatives.

This comes as the Nigerian Stock Exchange (NSE) announced that Rand Merchant Bank and Chapel Hill Denham had been appointed as financial advisers to its proposed demutalization. It is hoped demutalization will bring about enhanced governance standards in line with global international norms.

Nigeria is introducing a number of other reforms to improve liquidity. The CSCS is expected to move from T+3 to T+2, and is shifting to dematerialized shares. Furthermore, it has allowed for securities lending to proliferate in what should boost the market’s attractiveness among investors.

While the creation of market infrastructure is a welcome development in any capital market, it has been warned that some African markets lack the liquidity to make them viable. Augustine Kwakye-Agyekum at Rand Merchant Bank warned markets must address any inefficiencies they have before building CSDs or migrating to short trade settlement time-frames.

Others agree. “One of the issues that arises is whether market participants are trying to do too much too soon, and it does raise the question as to whether financial institutions should be focusing on the basics first, “said Rajesh Ramsundhar, head of product management and investor services, TPS Investor Services at Standard Bank.
The decision to launch a CCP is questionable in Nigeria, particularly as its derivatives market remains relatively small.