Trading floor of the Nigeria Stock Exchange

In 10 months, beginning from the first trading day in January 2017 till the last trading in October of the same year, transactions worth N115.32 trillion have exchanged hands at the FMDQ OTC market.  That amount is big enough to finance Nigeria’s proposed 2018 budget 13 times. Bamidele Famoofo reports

As at the last trading day in the month of October 2017, investors at the FMDQ OTC Securities Exchange have sealed deals worth over N115 trillion through the over-the-counter (OTC) trading platform. The average daily turnover in the market stands at N554.43billion. According to FMDQ OTC Securities Exchange, investors engage in business activities for 208 days in those 10 months.

On the flip side, investment in the capital market trails the money market, where more of short-term interest-yielding instruments are traded. According to data made available by the Nigerian Stock Exchange (NSE) for October, 2017, the equities market, where long-term interest-yielding instrument (share) is traded recorded a total turnover of N59.03billion from the sale of about 5.31billion units of ordinary shares of listed companies. On the average, it will take about nine months for the equities market to achieve a turnover of one day in the fixed income and currency market.

While average turnover in the fixed income market stood at N11.51trillion in one month, total market capitalisation for all equities listed on the NSE as at December 6, 2017 stood at N13.61trillion.

FMDQ OTC Securities Exchange is a Securities and Exchange Commission (SEC) registered over-the-counter (OTC) market, with dual responsibilities of a securities and a self-regulatory organisation. Its primary focus is on fixed income instruments and currency trading.

Breakdown of transactions in the review period showed that investors are more comfortable with instruments that would yield a return to them in the barest minimum time (short-term) which is responsible for dearth of long-term investment fund in the economy. Therefore, Treasury Bills (T-bill) which usually will attract return on investment (ROI) in a maximum of one year has remained investors’ toast in the fixed income market over the years.

According to FMDQ OTC Securities Exchange, investment in treasury bills accounted for 43.8 per cent of total turnover recorded in the OTC market as at end of October 2017. The amount splashed on T-Bills by investors in the review period amounted to N50.53 trillion or 43.8 percent, which made T-Bill the most-sought-after investment instrument.  This was followed by money market instruments (Money Market (Repos/Buy-Backs and Unsecured Placements/Takings) which accounted for 22.32 percent or N25.74trillion of total transactions.  

Investments in foreign exchange and foreign exchange derivatives totalled N29.42 trillion. However, foreign exchange accounted for 13.7 percent of the 115.32 trillion that exchanged hands in the OTC market in the review period with N15.75 trillion injected in that segment of the market while FX derivatives at N13.67trillion represented 11.9 percent of total turnover recorded in the market in 10 months.

Transactions in federal government bonds amounted to N8.24trillion or 7.2 percent of gross turnover while unsecured placements accounted for 1.1 percent of turnover at N1.26trillion.

Other products patronised by investors in the market, though at a lower scale, included Eurobonds, N80.72billion, Other bonds (agency, sub-national, corporate & supranational), which attracted N25.57billion from investors.  Investors only spent N22.90 billion on money market derivatives in the review period.  No investment was recorded in the commercial paper (CP) section of the market within the period of 10 months reviewed.

Month-on-month Performance 

The fixed income and currency (FIC) market was at its best at the end of first quarter in 2017, when Nigeria was still being ravaged by its worst recession in two decades. Total transactions (turnover) in the market were put at N13.42trillion, having increased by 10.50 percent from N12.15trillion accrued by market dealers in the month of February, 2017. Dealing members in the OTC Market are banks, Clients (private investors) and the Central Bank of Nigeria (CBN). The commercial banks, however, plays the intermediary role between itself and the client and/or the CBN. 

Howbeit, investment in the FIC market started on a low note in 2017 with turnover dropping by 13.9 per cent from N12.3trillion in December 2016 to N10.65trillion in January, 2017. Investments in both fixed income securities and currencies recorded an upbeat in February with turnover growth of 12.01 per cent as value rose to N12.15 trillion.

There was, however, a significant drop in activities in the market in the first month of the second quarter as total revenue accrued by dealing members in the month of April dropped by 34.68 percent from N13.42trillion to N8.79trillion. Turnover, however, picked up by 7.32 percent to N9.49trillion in May, 2017. 

The biggest growth in 10 months was recorded at the end of second quarter in 2017 when Nigeria exited its worst-ever recession in 20 years as turnover in the fixed income and currency expanded by 32.98 per cent. The increase was as a result of an inflow of about N3.13trillion into the economy through the FIC market in June, raising gross turnover to N12.62trillion from N9.49trillion in May.

According to the NBS, in the second quarter of 2017, the nation’s Gross Domestic Product (GDP) grew by 0.55 percent (year-on-year) in real terms, indicating the emergence of the economy from recession after five consecutive quarters of contraction since first quarter 2016.

“This growth is 2.04 per cent higher than the rate recorded in the corresponding quarter of 2016 (–1.49 per cent) and higher by 1.46 per cent points from rate recorded in the preceding quarter, (revised to –0.91 per cent from –0.52 per cent). Quarter on quarter, real GDP growth was 3.23 per cent,” the NBS said.

“During the quarter, aggregate GDP stood at N26,986,005.20million in nominal terms, compared to N23,547,466.91 million in Q2 2016, resulting in a Nominal GDP growth of 14.60 per cent,” the report added.

Since June 2017, turnover in the market never got close to the low of N8.79trillion recorded in April 2017, though July and September recorded a decline. As at October turnover stood at N12.18trillion, which represented 7.39 per cent increase compared to N11.34 trillion turnover recorded in the month of September.

According to the FMDQ OTC report for the month of October, turnover year-on-year increased by 47.19 per cent (N3.90trillion) in the month. 

“The Treasury Bills market accounted for 37.20 percent (38.45 per cent in September) while FGN2 bonds recorded 6.51 percent (9.09 per cent in September) of total turnover in October. 

“Activities in the Foreign Exchange (FX) market accounted for 36.92 percent (36.49 per cent in September) while Money Market (Repurchase Agreements [Repos]/Buy-Backs & Unsecured Placements/Takings) accounted for 19.27 percent (15.92% in September) of total turnover for the reporting period”, the report revealed.  

Contribution of Dealing Banks to Turnover 

The top 10 dealing member (banks), accounted for 71.51 percent (N82.46trillion) of the overall turnover in the market, with the top three,  accounting for 47.75 per cent (N39.38trillion) of this sub-section of the market. 

Stanbic IBTC Bank PLC, Access Bank PLC and Ecobank Nigeria Limited topped the league table, ranking 1st, 2nd and 3rd respectively, in the value traded for the overall OTC market, maintaining their positions in the league table as the top three banks for seven consecutive months. 

The other dealing member (banks) maintained their positions on the league table with the exception of First Bank of Nigeria Limited, swapping position with Standard Chartered Bank Nigeria Limited, and both now occupying 5th and 6th places respectively; and Union Bank of Nigeria PLC, swapping position with Guaranty Trust Bank PLC, and both now occupying 9th and 10th places respectively.