Capital market stakeholders have stressed the need for a robust market data for the country to harness the potential inherent in the derivatives trading.
They spoke at the sixth edition of the NGX Market Data Workshop organised virtually by the Nigerian Exchange (NGX) Ltd. on Wednesday in Lagos.
The workshop was entitled: “How Market Data Powers Investment Strategies Using Derivatives Products.”
The NGX Chief Executive Officer, Mr Temi Popoola, in his welcome address, said that market data was a fundamental input in facilitating research, fostering new investment strategies as well as wise investment decision.
Popoola said the global derivatives market had grown in the last two decades in spite of the global economic crisis in 2008.
He noted that the rapid development in finance as well innovating financial engineering and regulatory influence play an important role in the expansion of the derivatives market.
Popoola added that based on the World Federation of Exchanges, the global derivatives market saw a 40 per cent increase in trading volumes in 2020 alone, which was three times larger than what was recorded in 2019.
Popoola explained that the growth was the highest seen in 15 years irrespective of the financial crisis of 2007/2008.
He said the growth was attributed to the increasing need for risk management under heightened level of uncertainties and volatility due to the COVID-19 pandemic.
“Trading activity by asset classes in 2020 saw the highest number of equity derivatives contract traded in a year of about 26 billion dollars in the 10 year period under review.
“Stock index products were the most active derivatives products in 2020 accounting for 20 per cent of the overall derivatives trading volume.
“Through cutting edge technologies, NGX continues to promote high level of market transparency by enabling easy access to quality, real time market data, such as transaction prices, bid offer prices and all trading information, becomes the bedrock for price discovery and investment strategies.
“Derivatives traded on the exchange disseminate price information that aid both private and public entities because exchanges make contract volumes and prices publicly available, such transparency help the market function more efficiently,” he said.
Popoola also said that constructive development of the derivatives market in the emerging market economies, needs to be supported by sound macroeconomic fundamentals and updated financial policies and regulations.
The Chief Executive Officer of InfoWare, Mr Uwa Agbonile, said that derivatives play a significant role in improving the financial market efficiency and was a form of futuristic contract.
Agbonile, who delivered a paper titled “Bringing in the next two million investors: Using derivatives to drive liquidity,” said the use of derivatives was to hedge risk exposure and most reliable economic system from time immemorial.
The Head of Department, Market Services, NGX, Mr Olufemi Balogun, who spoke on the theme of the workshop said that derivatives was a risk management tool in the capital market.
“Derivatives are financial instruments that have value derived from other assets like bonds and stocks; they are used to hedge a position or to speculate on the future moves in the underlying instruments.
“The implicit conclusion of the Market Data Workshop held in 2020 was that derivatives product is a tool for risk management and the usage of market data and sound technology enhances its implementation.
“The major investment strategies of derivatives traders are hedging strategy, speculative trading and the arbitrage trading,’’ Balogun said.
He noted that the role of market data in the derivatives market include, pricing and trading, monitoring volatility and creating risk management models, among others.
