Nigerian Stock Exchange Releases Draft Rules For Derivatives Market

The Nigerian Stock Exchange, in line with its strategic objective to increase the number of asset classes traded on its platform, is working on introducing Exchange Traded Derivatives (ETDs) in the Nigerian capital market.

The Exchange does not currently have the requisite framework for the creation, listing, and trading of derivatives products.

Accordingly, the draft Derivatives Rules seek to create a regulatory framework for the aforementioned purposes. The framework will also regulate the activities of the trading members and other market participants in the Exchange Traded Derivatives market.
Consequently, The Exchange is proposing Rules for The Exchange’s Derivatives Market (“Derivatives Rules”)

Summary of the Draft Derivatives Rules

The draft Derivatives Rules are set forth in eight (8) chapters, which cover various broad areas namely: Definitions, General Provisions, Membership, Formation of Transactions and Trades, Trading Rules, Default Rules, Listing of Derivatives Products and Complaints and Enforcement.

The Definition chapter contains a list of terms that are to be construed in the context of The Exchange’s Derivatives Market, and are as used in the Derivatives Rules. These terms have specific usage within the Derivatives Market, and have been defined for clarity and to avoid any ambiguity of their usage.

The General Provisions chapter contains provisions relating to Fees and set-off, Set off, Currency of payment, Amendments, Limitations of liability and indemnity, No warranty, Indemnity, Confidentiality, Severability, Waiver, Governing Law and Arbitration.

The Membership chapter contains provisions on Types of Membership and Application, Membership Criteria, Members Clearing Arrangements Rules, Trading on behalf of Clients, Notification Requirements, Right to Audit, Prohibitions, Summary Access Suspension, Emergency Actions, and Termination of Membership.
Also, the chapter on Formation of Transactions and Trades contain provisions on Formation of Transactions, Transactions, Cleared Trades, and Transactions on Behalf of Clients.

The chapter on Trading Rules contains provisions on general requirements for trading in The Exchange’s Derivatives Market, Erroneous Orders, Reacceptance of Trades, Orders, Market Making and Market Maker Rules, Block Trades, Cancellation of Incorrect Trades, Trade Reporting Rules, Protests, Re-Acceptance, Daily Cash Settlement Price.

Also, the Default Rules contain provisions relating to Application of the Exchange Default Rules, Actions on a Declaration of Default, Calculation and certification of net amount, Notification to other Members and Co-operation with the Regulatory Authorities, Costs.

The chapter on Listing of Derivatives Products contains provisions on the requirements for listing of Derivatives Products, approval of an application for listing of Derivatives Products, as well as delisting.

The Complaints and Enforcement chapter contains provisions regarding how to deal with activity that breaches the Derivatives Rules, and disciplinary action to be taken in accordance with The Exchange’s Adjudication Process.

Here is a copy of the draft rules

Comments are to be submitted not later than the close of business on
Wednesday, 31 January 2018. Comments should be set forth in a WORD document attached to an electronic mail to Mr. Oluwatoyin Adenugba, Head, Rules and Interpretation Department of The Exchange at oadenugba@nse.com.ng

Please note that the draft Derivatives Rules are subject to the approval of the National
Council of The Exchange, and the Securities and Exchange Commission.