FMDQ CMC Update Report Dipo Odeyemi - PowerPoint Presentation

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FMDQ CMC Update Report

Dipo Odeyemi

Senior Vice President

Divisional Head, Market Operations & Technology

April 13, 2016

Outline

Part 1

FMDQ

OTC

Market Sizing

2

Part 2

DCMD Project Implementation Update

4

Part 3

Bilateral Repo Supported

with Collateral Management

5

Part 4

Dealing Member Specialist (DMS) Project

Plan/Short

Term Bonds (STBs)

6

Part 5

Bond

Specialist System (BSS)

8

Part

6

FMDQ

Listings and Quotations

10

Part

7

Non-Interest

Capital Market Products Development (Sukuk)

11

Part

8

OTC Derivatives Market

12

Part

9

FMDQ Market Development

Workgroup (FMDW)

13

14

FMDQ Market Surveillance

FMDQ OTC Market Sizing (January – December 2015)

Other bonds include Agency, Sub-national, Corporate and Supranational Bonds

mm - million

Source

: FMDQ Data Portal: Figures reported by Dealing Members on a week ending basis

FMDQ OTC Market Sizing (January - February 2016)

Other bonds include Agency, Sub-national, Corporate and Supranational Bonds

mm – million

Note: Figures may be subject to change due to potential adjustments from Dealing Members

Source

: FMDQ Data Portal: Figures reported by Dealing Members on a week ending basis

DCMD Project Implementation Update

Steering Committee (

SteerCo

)

Transformation Committee

(TransCo)

Project Management Office (PMO)

Regulation Consolidation

Product and Infrastructure

Market Liquidity & Enhancement

Investor/ Issuers & Intermediaries Engagement

/Education

PMO Advisers

Summary Report- Composition of Project Committees

S/N

Committee

Members

Accepted

% Accepted

1

Steering Committee

6

6

100

2

Transformation Committee

6

6

100

3Regulation Consolidation Sub-Committee145364Market Liquidity and Enhancement Sub-Committee98895Product and Infrastructure Innovation Sub-Committee118736Investors, Issuers and Intermediaries Engagement/Education Sub-Committee10101007PMO Advisers 3380

Key Next Steps

ActivityDatesCommittee Kick-off meetingsApril 21 & 22, 2016Formal Project LaunchTo be agreed

Highlights

Bi-lateral Repo supported with Collateral Management

S/N

Initiative /Product

Update

1

Bi-lateral Repo supported with Collateral Management

Having

recognised

the importance of a liquid and vibrant repo market, and the need to establish a comprehensive best practices for the Nigerian repo market, FMDQ proceeded to deliver on the project with the incorporation of a robust Collateral Management System (CMS) as a critical success factor for the initiative

Management completed the documentation of the draft Repo and Collateral Management Framework (Framework) and exposed the draft to FMDA Money Market and Bond Workgroups for review. Feedback

were

received from the Workgroup Members and incorporated into the Framework accordingly

FMDQ & FMDA in collaboration with the Debt Management Office (DMO) and Central Bank of Nigeria (CBN) engaged the National Pension Commission (PenCom) on the development of a Repo Market that would inspire confidence and qualify for pension fund assets

Consequently, an all Stakeholders’ meeting was held on March 10

th

to discuss the various options and identify the Commissions’ preferred model while also addressing concerns raised

A final product paper has been sent to the Commission with a request for a No Objection to pension funds participating in the Repo market. Activation of the repo market will commence this quarter

Dealing Member (Specialist) DMS

S/N

Initiative

Update

2.

Dealing Member

Specialist (DMS)

FMDQ finalised the draft Framework covering the project roll-out plan, minimum registration requirements, operational modalities and systems requirements for the market segment and proceeded to implement the various action points with the activation of the new membership category

FMDQ held a Simulation Workshop on March 23 & 24, 2016 with DMSs who have successfully completed their application process, to familiarise them with Q-Deal

Trading System developed by FMDQ

Following the Simulation Workshop, DMSs commenced a trial period of one (1) month (April 4-28, 2016) to further consolidate their understanding of trading

system

and DMS market

standards

ahead of the commencement of live trading on the FMDQ Platform

Activation of live trading in the DMS Market is scheduled for May 3, 2016

Dealing Member Specialist (DMS) Project Plan

*Scheduled date: March 23 – 24, 2016

Note:

DMs: Dealing Members; 2WQ: Two-way quote; MTM: Mark-to-Market SEC: Securities Exchange Commission; T.bills: Treasury Bills

PLANNING

Final

DMS

Framework

Application Process

December 2015

IMPLEMENTATION

2-day Simulation Workshop*

Dummy DMS 2WQ Trading - one (1) month duration

Dealing System User Acceptance Tests

Payment of Membership Dues

Grant Access to Dealing System

Q1/April 2016

Assignment of Initial Trading Capital

T.bills Trading Only

Daily End-of-Day Position Close-Out

No Client trades

MODIFICATIONS

Settlement Bank Sign-

O

ns

Dealing System

Upgrade:

Real-Time MTM

Liquidity Providers (DMs) IntegrationE-bond Price DiscoveryQ2 2016T.bills Trading with Settlement Banks with Clearing ServicesClient ServicesDealing with DMsE-bond Price DiscoveryCLOSINGPreparation of DMSs for SEC RegistrationLicencing by FMDQSEC RegistrationVariable LicencingT.bills OnlyT.bills + Bonds Q3 2016Revised Trading Collateral RequirementsDMS Market Only Integrated Market Full Market

Bond Specialist System (BSS)

S/N

Initiative/ Product

Update

3.

Bond Specialist System (BSS)

FMDQ developed the 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

Management completed the documentation of the draft BSS Framework and exposed to the systemically important financial institutions (SIFIs) who had expressed interest in developing this initiative with FMDQ

Feedback were received from some Dealing Member (Banks) (DMBs), and the Framework updated accordingly

Management also seek

to

expand the coverage for this initiative by pre-qualifying institutions using the FMDQ Bonds League Table for the year 2015. Based on the foregoing, the number of potential Bond Specialists is currently at twelve (12) institutions

The

BSS

Rules

and Agreement are currently being developed, and will be shared with prospective Bond Specialists. The BSS initiative is scheduled to be activated Q2 2016.

Short-Term Bonds (STBs)

S/N

Initiative/ Product

Update

4.

Short Term bonds (STBs)

In furtherance to drive growth and development in the Nigerian Debt Capital Market (DCM), FMDQ engaged various stakeholders across the DCM value chain (issuing houses, corporates, investors etc.) and received overwhelming feedback that there exists a funding gap between the money and capital markets which is yet to be explored within Nigeria’s financial markets

In response to this feedback, FMDQ engaged SEC and

emphasised

the need for the introduction of STBs which would effectively bridge the funding gap between short-term issuances like Commercial Papers (“CPs”) and the traditional medium and long-term bonds

STBs can be defined as bonds with maturities of twelve (12) months and up to three (3) years i.e. between CPs with maximum tenor of 270 days i.e. nine (9) months and the traditional “medium and long-term” bond tenors (typically issued for three (3) years and above)

Furthermore, the STBs Registration Process which outlines the stages, responsibilities and actions involved in the registration and listing of STBs has been documented and

a

revised submission made to SEC on March 19, 2016

FMDQ Listings and Quotations – 2016

S/N

Update

Date Listed

5

Listings and Quotations

Bond

Listings:

Transcorp Hotels

PLC

₦10.000,000,000.00 Series 1: 7-Year 16.0% Fixed Rate Unsecured Bonds under a ₦30.00bn Medium-Term Bond Programme on the platform

January 18, 2016

Transcorp Hotels

PLC

₦

9,758,000,000.00 Series II: 5-year 15.5% Fixed Rate Unsecured Bond under a

₦

30,000,000,000.00 Medium Term Bond Programme on the platform

February 2, 2016

FCMB Financing SPV PLC

₦

23,185,000,000 Series II 5-Year 15% Fixed Rate Unsecured Bond under a

₦

100,000,000,000 Debt Issuance Programme

February 18, 2016

CP Quotations:

Guinness Nigeria PLC

Series II

- ₦7,225,956,000.00 & Series III ₦2,774,044,000.00 Commercial Paper Notes under a ₦10,000,000,000.00 Domestic Commercial Paper Issuance Programme were quoted on the platformFebruary 14, 2016

Non- Interest Capital Market Products Development

S/N

Initiative

Update

8.

Development of Non Interest Capital Market Products (Sukuk)

To further deepen the DCM space, FMDQ has taken a keen interest in the non-interest capital markets (“NICM”) and has developed

Draft Sukuk Listing Rules

(the “Rules”) which lay out the requirements for the listing of Sukuk on the Exchange

The

Draft Rules

, which are in alignment with the current regulatory framework of the Commission for Sukuk as provided in the Securities and Exchange Commission (SEC) Rules and Regulations 2013, were also developed following research into global best practices with examples from notable NICM hubs such as Malaysia and Dubai

The

Draft Rules

sets out the eligibility criteria for Sukuk issuers and their issues, for the admission of Sukuk issues to the Quotations List of the Exchange, and also prescribes the post-Listing/Quotation compliance requirements for all listed Sukuk issues, in order to promote continuous disclosure and transparency in furtherance of FMDQ’s investor protection

mandate

The Draft Rules will be sent to SEC for approval

OTC Derivatives Market

S/N

Initiative

Update

9.

OTC Derivatives Market

The engagement of UK based Salonika Consultancy Consortium to conduct the Feasibility Study on the Nigerian over-the-counter (OTC) Derivatives Market (with focus on interest rate and currency derivatives) marked the beginning of the journey to deliver a vibrant derivatives market in Nigeria

The expected outcomes of the Study will be the Feasibility Report and

Implementation Roadmap for Fixed Income and Currency (FIC) Derivatives Development in Nigeria, with Project implementation to commence 2017

FMDQ Market Development Workgroup (FMDW)

S/N

Initiative

Update

6.

FMDQ Market Development Workgroup (FMDW)

FMDW

inaugural meeting was held in

October 2015.

Workgroup Members reviewed the Workgroup Framework

and received an update on FMDQ Market Development Initiatives. The Workgroup expressed satisfaction with the Workgroup’s focus and efforts of the Board and Management of FMDQ in establishing

the Workgroup

At

t

he subsequent

meeting held in

December

2015,

a

comprehensive Market Development Initiatives Report for 2016

was developed and

submitted to FMSC (Financial Market Sub-Committee)

during the Bankers’ Committee Retreat

At the last Workgroup meeting held in April 2016, an update on all Market Development Initiatives was presented to all Workgroup Members

FMDQ Market Surveillance

S/N

Initiative

Update

7

.

Implementation

of E-Bond Trading Infractions and Penalties Guide

In a bid to strengthen market discipline and sustain public confidence in the markets, the Central Bank of Nigeria (CBN) in a letter dated January 6, 2016 charged all Dealing Members (DMs) to ensure strict compliance with all FMDQ Rules as they would be required to disclose all infractions and the resultant penalties in their audited financial statements going forward

There is significant improvement in DMs’ compliance with the E-Bond Trading Rules which resulted in a steady decrease in the number of DMs that were penalised from November 2015 to March 2016

FMDQ has commenced the automation of spreads compliance monitoring on the Daily Surveillance Report (DSR) to enable self-monitoring of the infraction by DMs. Upon conclusion of the automation, FMDQ plans to activate the Penalties Regime on arbitrary widening of spreads compliance by May, 2016, after concluding pilot test with DMs

To ensure the integrity of price formation, price discovery, trade data and fixings published by the Exchange, FMDQ has commenced the reconciliation of trade data submitted by its Dealing Members.