Global derivatives market to hit $39.17 billion by 2027-NGX

The Nigerian Exchange Limited has said that the global derivatives market is poised for significant growth, projected to reach $39.17 billion by 2027, up from $21.98 billion in 2020, with a compound annual growth rate (CAGR) of 8.6%.

Executive Director, Capital Markets, NGX, Jude Chiemeka who stated this at a workshop on NGX’s Single Stock Futures product held virtually said 90% of the world’s 500 largest companies across 26 countries strategically employ derivatives to mitigate risks.

Single stock futures

Single stock futures (SSFs) are derivatives instruments that allow buyers and sellers to sell a single stock at a predetermined future date and price.

It offers investors options in leveraging, speculation, hedging, pairs trading, and cash equitization.

He underscored the importance of derivatives offering risk protection and catalyzing the development of resilient, liquid capital markets, which, in turn, bolster economic growth.

  • “This remarkable growth is underpinned by product and technology innovations driven by exchanges, intermediary firms, and related service providers worldwide,” he said. 

Chiemeka added that NGX remained committed to promoting access to diverse asset classes and promoting investor confidence in the capital market.

The role of CCPs

The Managing Director and Chief Executive Officer of NG Clearing, Farooq Oreagba spoke about the role of Central Counterparties (CCPs) in derivative transactions.

  • “The crucial role of the CCP is to make sure every party fulfils its side of trade obligations that arise as part of the trade. The CCP monitors the margin. 
  • A margin is a form of collateral that participants must deposit to cover potential losses. The CCPs try to ensure that participants have sufficient funds to cover any potential losses that may arise,” Oreagba said.

Lessons from other countries

In a fireside session of the program, two derivatives experts from the continent shared their lessons from East and South Africa.

Both Justus Ogalo, a derivatives manager of the Nairobi Securities Exchange, and Kgabo Molabe, a Specialist in Structured Products from the Johannesburg Stock Exchange admitted that liquidity issues were the key challenges operating from their sides of the continent.

The Director of Registration, Exchanges, Market Infrastructure and Innovation, Securities and Exchange Commission (SEC), Abdulkadir Abbas, said the regulator is trying to collaborate with more stakeholders and build capacity in this regard.

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