FMDQ OTC on a mission to build a liquid bond market in Nigeria

31 mars 2014


Bola Onadele
MD/CEO , Financial Markets Dealers Quotations (FMDQ) OTC PLC

Mr. Onadele has over 20 years of experience in financial markets architecture and diplomacy. He championed various financial markets infrastructure initiatives in Nigeria, among which two-way quoting system, Nigerian Inter-bank Offered Rates (NIBOR), Nigerian Inter-bank Treasury Bills’ True Yields (NITTY) and the Contributors’ Home Ownership Scheme (CHOS).

Mr.Onadele also served as consultant to the World Bank-IFC on the development of the Nigerian corporate bond market. He was appointed the Country Manager of the Efficient Securities Market Infrastructure Development (ESMID) program in 2009.

How the FMDQ sees the role of government debt in galvanizing the Nigerian economy

The FMDQ initiative is based on a foundational understanding of the role of government debt in stimulating an economy. Government debt supports conduct of indirect monetary policy operations; acts as benchmark for long-term private debt issues; supports collateralized lending in the inter-bank market, thereby reducing the need for frequent Central Bank intervention; represents an attractive alternative to capital flight; channels savings from the non-monetary sector into the formal financial system; reduces size of the black economy and widens the tax base; facilitates de-dollarization and improves perceptions of currency and country risks.

How the FMDQ has changed the way OTC market activities are conducted in Nigeria.

Prior to the development of FMDQ, the governance over the Nigerian inter-bank OTC market was fragmented, thereby limiting its development, credibility, operational processes, liquidity and capacity development. The FMDQ dream evolved in order to address these challenges. Through its function as a market organizer and self-regulatory organization, FMDQ drives liquidity and enhances the efficiency of the price discovery mechanism.

Why FMDQ is key for the development of the Nigerian Bond Market

Through effective collaboration with key Nigerian financial market regulators, FMDQ is deepening the OTC financial markets, complementing other securities exchanges and providing all local and international stakeholders with world-class market governance for capital transfers.

Driven by its “GOLD” agenda (Global Competitiveness, Operational Excellence, Liquidity and Diversity) for the transformation of the OTC financial markets, FMDQ has begun instituting requisite financial market infrastructure to drive transparency, governance, market oversight, credibility and market liquidity.

FMDQ has also at heart the promotion of several reforms needed for the development of the Nigerian debt capital market; these reforms relate to:

  1. Enabling Environment – Macro-economic environment; legal and regulatory (issuance process and market rules); policy and tax regime;
  2. Organized Market Place – Efficient trading, clearing, settlement and depository systems; pre-trade, trade and post-trade transparency; market credibility and integrity;
  3. Capacity and Institutions – Sponsored individuals & institutions; securitization, informed investors and
  4. Stakeholder engagements - including partnerships and funding to support market development and product innovations.

How FMDQ positions itself in the market of Nigerian securities firms

FMDQ has mapped out key strategic initiatives and market transformation activities geared towards improving the efficiency of the OTC markets. These strategies are: price and market transparency, listing and liquidity enhancement, product innovation, market governance and development and lastly economic development advocacy.

Price and Market transparency: The flagship for the market transparency drive is the FMDQ Daily Quotations List (DQL) which provides market-traded rates in the money and FX markets and market-traded yields for all fixed income securities. Launched on November 7, 2013, the DQL (www.fmdqotc.com/markets/daily-quotations-list/) has become the reference point for valuation of fixed income portfolios in the market.

Furthermore and in line with its vision to be a technology driven OTC platform, FMDQ introduced on March 17, 2014, in partnership with Bloomberg L.P., an innovative trading system for fixed income securities, the Bloomberg E-Bond. The E-Bond system provides a complete, consolidated marketplace for Nigerian government bonds, offering market participants a robust and flexible set of tools supporting the full trade workflow. This includes pre-trade price discovery and analytical tools, the ability to handle both multi-dealer request-for-quote (RFQ) and order trading, straight-through processing (STP) functionality and integrated trade capture and reporting tools. In addition, global investors and market oversight entities can review market activity in real time with access to live pricing data and the ability to audit transactions as they occur.

Listing and Liquidity Enhancement: A critical strategic goal for FMDQ is the enhancement of liquidity for bonds. In building an efficient bond market, FMDQ has developed the FMDQ Bond Specialist System (BSS) to boost the debt capital market and enhance the liquidity of non-sovereign bonds through the commitment of FMDQ Dealing Members, to make firm bids and best-effort offer quotes to willing participants in the non-FGN bond secondary market. This will serve to ensure

  1. Primary issuance price formation improvement
  2. Competitive pricing/quoting for investors
  3. Liquidity in the non-FGN bond secondary market
  4. Price transparency and valuations

Product Innovation: FMDQ’s product innovation strategy revolves around 4 points: diversification of fixed income products; reliable fixed income benchmarks and indices; better market operations and structure and credible yield curves and fixings.

Market Governance and Development: Prudential oversight (rules, standards and surveillance frameworks) and self-regulation, which includes governance, compliance principles and global best practices are among FMDQ priorities.

Economic Development Advocacy: Debt financing structures for SME/Agriculture and Housing/Infrastructure are areas of concern to FMDQ.

A final word….

FMDQ continues to show further commitment in developing the Nigerian bond market as it seeks developmental partnerships, technical advisory and conduct of market readiness studies for products and market development in line with its mission to be innovative and credible in support of the OTC financial markets. We expect that the activities of the company in the near future would substantially improve the efficiency of the OTC markets under its purview, with a corresponding improvement in the real sector vis-à-vis access to capital for SMEs and empowerment of other financial system participants.

About FMDQ

FMDQ OTC PLC (FMDQ) is an over-the-counter (OTC) securities firm licensed by the Nigeria SEC and operating in Nigeria. Its vision is to become the most liquid, efficient, secure and technology-driven OTC platform in Africa by 2018.

FMDQ’s primary focus is on the trading activities in the OTC markets: money, repo, treasury securities, currency and derivatives.

Through effective collaboration with key Nigerian financial market regulators, FMDQ is deepening the OTC financial markets in Nigeria. In addition, its function as a market organiser and self-regulatory organisation (SRO), helps drive liquidity and price discovery in the local market.

For more information, please visit www.fmdqotc.com.