AFEX, NG Clearing Seal Pact to Unlock Commodity Derivatives in Nigeria.

By Linda Ike

The AFEX Commodities Exchange Limited, and NG Clearing Limited have signed an agreement to develop the infrastructure that facilitates trading and central clearing of futures contracts for commodities in Nigeria.

AFEX is Africa’s leading commodity exchange and NG Clearing Limited is West Africa’s Premier.Central Counterparty.

The signing ceremony which was held in Lagos on Wednesday, November 9, 2022 formalises the commencement of a partnership aimed at transforming the agricultural value chain.

AFEX said, to achieve this goal, it looks to introduce products that de-risk the sector and drive financial inclusion for rural communities.

Speaking at the event, the Chief Executive Officer of AFEX, Mr. Ayodeji Balogun, and the CEO of NG Clearing,
MR. Tapas Das expressed happiness that the partnership is coming at a time when unlocking value in Nigeria’s agricultural sector is at the front burner of Government initiatives.

They said the agreement is a precursor to the development of technological infrastructure and the introduction of commodity futures in Nigeria.

The CEOs stated that AFEX’s commodity exchange will serve as the trading venue while NG Clearing will serve as the Central Counterparty that guarantees the settlement of trades.

Mr. Balogun thereby highlighted the significance of the agreement in light of AFEX’s mission of being a reference point for commodities in Africa.

He said , ” we share a drive with market regulators and other players in Nigeria’s capital market to deepen the market and unlock financing options and alternative investment classes for players in the commodities ecosystem.

“This collaboration with NG Clearing is a new leap for the financial market in the country that further opens opportunities for generating shared prosperity through the commodity market.

“We believe that this would further position the country as a preferred capital destination with a viable path of effectively managing risks in key sectors of the economy.

Mr. Tapas Das of NG Clearing Limited also stated that ” this partnership with AFEX will usher in a new phase in the development of Nigeria’s financial and agricultural sectors.

“As the central counterparty, we bring confidence and trust to the market as we will be guaranteeing the execution of the trades through our resilient collateral management processes.

He continued, ” we are proud of this collaboration and confident it will unlock the untapped potential of commodity derivatives in Nigeria.

AFEX CEO noted that trading commodities such as cocoa, maize, paddy rice, and others are limited to the spot and OTC markets.

The spot and OTC market exposes market participations to frequent price movements and counterparty risk.

With futures market, participants can look in prices and positions of various commodities ahead of time without facing the risk of default by a counterparty.

According to AFEX, it’s market turnover currently stands at N123.72 billion while NG Clearing earlier facilitated the introduction of equity index derivatives in April 2022, serving as a Central Counterparty to the NGX Exchange.