Derivatives 2025

NIGERIA Law and Practice Contributed by: Fred Onuobia, Michelle Chikezie, Chima Uzochukwu-Obi and Anita Ebbi, G Elias

corresponding development of regulatory frameworks and structures. The increased focus on derivatives regulation in the ISA 2025 is a strong indication of the regulatory commitment to deepening and formalising the derivatives ecosystem in Nigeria.

tions for the emergence of innovative derivatives prod - ucts, including diverse futures products. 2.2 Swaps and Security-Based Swaps In Nigeria, swaps are traded OTC – that is, directly between the contracting parties rather than on a cen - tralised exchange such as the NGX or FMDQ. Parties will usually agree on the terms of the swap and will document those terms under a standard Internation - al Swaps and Derivatives Association (ISDA) Master Agreement, making the necessary changes in the schedule to the ISDA Master Agreement and enter - ing into Confirmations for specific transaction terms, as needed. Swap transactions in Nigeria are primarily interest rate swaps and currency swaps (including cross- currency interest rate swaps). No law prohibits the trading of other types of swap transactions (including commodity swaps). Although there is no streamlined framework for the regulation of swaps in Nigeria, swap transactions that involve a Nigerian counterparty are governed in more than one respect by Nigerian stat - utes and regulations. CAMA and BOFIA, for example, have extensive provisions on netting of payments under a qualified financial contract (such as a swap) to which a Nigerian company (and, in the case of the BOFIA, bank or financial institution) is a party. CAMA also contains general provisions on the ways in which a company can validly take corporate actions, includ - ing the due execution of transaction documents. Importantly, the Derivatives Trading Rules (paragraph 15) requires all participants (dealing members or enti - ties performing clearing services) and other registered capital market operators to report all OTC derivatives transactions to a trade repository or an exchange (as the case may be) in accordance with guidelines to be issued by the SEC from time to time. The report must contain: • the entry into of an agreement or contract for the sale or purchase of a derivatives contract or prod - uct, however concluded by the parties and how - ever described; • a change in the beneficial ownership of deriva - tives contracts between parties, one of whom is a participant;

2. Types of Derivatives 2.1 Futures and Options

As mentioned in 1.1 Overview of Derivatives Markets , the Nigerian derivatives market is still in its nascent years. This is reflected in the limited derivatives prod - uct offerings available in the Nigerian market. With regard to futures, the major securities exchanges in Nigeria – the NGX and FMDQ – have different offer - ings. The NGX currently has four offerings of cash- settled index futures, which track the NGX 30 Index (a capitalisation-weighted index that tracks the per - formance of the 30 largest and most liquid companies listed on the NGX) and the NGX Pension Index. For its part, FMDQ offers federal government of Nigeria (FGN) bond futures and naira-settled exchange-trad - ed FX futures, which primarily track the exchange rate of the US dollar to the Nigerian naira. The various commodity exchanges (the Nigeria Com - modity Exchange, AFEX, and the Lagos Commodities and Futures Exchange (LCFE)) are also set up to offer standardised futures contracts that track the prices of particular commodities such as crude oil, paddy rice, and wheat. There are currently no options on futures being traded on any of the exchanges. The Nigerian derivatives market is yet to see the emer - gence of unconventional or innovative futures prod - ucts such as cryptocurrency futures. However, the ISA 2025 already anticipates this and has put in place a framework for the regulation of virtual and digital assets and any related services. Given the upward trend in the use of derivatives, it is very much pos - sible that in the medium to long term, Nigeria will see the development of a robust market infrastructure for derivatives and increased and expanded participation of stakeholders. This will create the requisite condi -

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