Global derivatives market to reach $39.17bn in 2027

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The global derivatives market is projected to reach $39.17 billion by 2027, up from $21.98 billion in 2020, with a compound annual growth rate (CAGR) of 8.6%.

This was disclosed by Nigerian Exchange Limited during a workshop to inform market stakeholders about NGX’s Single Stock Futures product launch and close the knowledge gap around the asset class in its bid to deepen the Nigerian capital market.

Single stock futures (SSFs) are derivatives instruments that allow buyers and sellers to sell a single stock at a predetermined future date and price. It offers investors options in leveraging, speculation, hedging, pairs trading, and cash equitization. The webinar was sponsored by RMB Capital, PAC Securities and APT Securities.

The Executive Director, Capital Markets, NGX, Jude Chiemeka, said 90% of the world’s 500 largest companies across 26 countries strategically employ derivatives to mitigate risks. He underscored the importance of derivatives offering risk protection and catalyzing the development of resilient, liquid capital markets, which, in turn, bolster economic growth.

He said โ€œThe global derivatives market is poised for significant growth, projected to reach $39.17 billion by 2027, up from $21.98 billion in 2020, with a compound annual growth rate (CAGR) of 8.6%. This remarkable growth is underpinned by product and technology innovations driven by exchanges, intermediary firms, and related service providers worldwide.”

Chiemeka added that NGX remained committed to promoting access to diverse asset classes and promoting investor confidence in the capital market.

On his part, the Managing Director and Chief Executive Officer of NG Clearing, Farooq Oreagba spoke about the role of Central Counterparties (CCPs) in derivative transactions.

“The crucial role of the CCP is to make sure every party fulfils its own side of trade obligations that arise as part of the trade. The CCP monitors the margin. A margin is a form of collateral that participants must deposit to cover potential losses. The CCPs try to ensure that participants have sufficient funds to cover any potential losses that may arise,” Oreagba said.

In a fireside session of the programme, two derivatives experts from the continent shared their lessons from East and South Africa. Both Justus Ogalo, a derivatives manager of the Nairobi Securities Exchange and Kgabo Molabe, a Specialist Structured Products from the Johannesburg Stock Exchange admitted that liquidity issues were the key challenges operating from their own sides of the continent.

On the sides of the operators in Nigeria’s finance market, the introduction of derivatives comes with several advantages to deepen the market.

The Director of Registration, Exchanges, Market Infrastructure and Innovation, Securities and Exchange Commission (SEC), Abdulkadir Abbas, said the regulator is trying to collaborate with more stakeholders and build capacity in this regard.