NIGERIA Law and Practice Contributed by: Fred Onuobia, Michelle Chikezie, Chima Uzochukwu-Obi and Anita Ebbi, G Elias
• the officer responsible for co-ordinating risk func - tion; • reporting line; • risk appetite and risk tolerance for all classes of risks; • risk register; and • roles and responsibilities of all staff (including board members) with regard to risk management. Accompanying sanctions are also provided where a participant defaults in complying with any of these requirements. Also, the SEC Rules (rule 259) mandate that every exchange must have a code of conduct ‒ approved by the SEC ‒ for its staff and members. The SEC Rules also mandate separation of client funds by traders and record maintenance requirements for market opera - tors and self-regulatory bodies. The derivatives trading rules of the respective exchanges also impose business conduct require - ments on the participants trading on those exchang - es, including such obligations as to management of accounts and client funds and client trade and allo - cation. Accompanying sanctions for default are also stipulated. In addition to all of the foregoing, all companies in Nigeria are subject to generally applicable AML laws and the Nigerian Code of Corporate Governance 2018. Companies that operate in specific sectors, such as banks, are additionally subject to sector- specific business conduct requirements imposed by their regulators. 3.1.7 Commercial End Users Commercial end users encounter distinct challenges when utilising derivatives for risk management. Such problems include the relative novelty and complexity of derivative instruments, counterparty risk ‒ espe - cially where there is no CCP ‒ and regulatory compli - ance burdens. Notably, entities can (and usually do) engage registered trading members (usually a bank) to enter into derivatives transactions on their behalf. Although this reduces some of the risks of trading as a commercial end user (such as complexity of docu - mentation and perhaps counterparty risk), it imposes
new obligations on such entity in the form of agency fees due to the trading member. Even though commercial end users in Nigeria that uti - lise OTC derivatives are exempted from some of the reporting and registration requirements that apply to dealing members and clearing members, some other requirements (such as the requirement for eCCIs) will apply to commercial end users in the same way as they would apply to a registered trading member. The limited domestic market liquidity and narrow product range further constrain the ability of com - mercial end users to access effective hedging solu - tions. Many commercial users rely on cross-border transactions to manage exposures, particularly in rela - tion to foreign currency, interest rates, and commodity prices. However, these transactions are often subject to foreign exchange controls and capital importation documentation requirements imposed by the CBN, which can potentially delay execution and settlement. As the market continues to evolve, improving prod - uct diversity, market depth, and legal certainty will be critical to promoting efficiency and encouraging com - mercial end users to actually participate in Nigeria’s derivatives ecosystem. 3.2 Local In Nigeria, derivatives are regulated only at the nation - al level under the framework and by the regulators highlighted in 1.1 Overview of Derivatives Markets and 3.1.1 National Regulators . There is no framework for regulating derivatives transactions at the state or local level. 3.3 Self-Regulatory Organisations, Independent Authorities, and Exchanges Some self-regulatory organisations or entities that operate in Nigeria are: • FMDQ; • NGX; • Nigeria Commodity Exchange (NCX); • AFEX; and • LCFE. These self-regulatory organisations are important stakeholders in the Nigerian financial markets and
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