FMDQ OTC Sheds N2.63trn in Turnover, Largest in 4 Years

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By Bamidele Famoofo

The Fixed Income and Currency (FIC) market on the platform of the FMDQ OTC Securities Exchange has recorded its biggest drop in turnover (month-on-month) in four years as at the end of January 2019.

Turnover, according to figures made available by FMDQ OTC, registered a 14.85 percent or N2.63trillion decrease in the first month of business activities in 2019.

It was the first time in the history of the market when value will record such a magnitude of drop.

Effort to get an explanation for the unprecedented turnover drop from the company proved abortive as at the time of press as officials contacted on phone declined comments saying they were not in the position to explain the performance.

Meanwhile, THISDAY investigation revealed that the closest to the drop recorded in January 2019 was in 2017 when turnover dropped by 13.09 per cent or N1.65trillion.

History has also shown that it is the culture in the FIC market for investment activities to start lower than it ended the previous year.

Record shows that turnover of transactions carried out in the FIC for the month of January 2016 settled at N7.35trillion; a N80.23billion (1.08 per cent ) decrease over the value recorded in December 2015.

In the same manner, turnover of transactions carried out in the FIC market for the month of January 2017 amounted to N10.65trillion; a 13.09 per cent N1.65trillion reduction while for the month of January 2018, turnover amounted to N11.71trillion; a 1.28 per cent decrease (N0.15trillion) from the value recorded in December 2017.

Howbeit, on year-on-year basis, turnover in the last four years have recorded an appreciation except in 2016 when it recorded a 33.56 per cent or N3.71trillion drop.

Year-on-year, turnover increased by 28.78 per cent or N3.37trillion as at January 2019.

Breakdown of investment activities in the market in January 2019 showed that the Treasury Bills (T. bills) and Foreign Exchange (FX) market segments remained the major drivers of turnover in the FIC market, jointly accounting for 78.69per cent of turnover in January and higher by 2.21 percentage points from their contribution to turnover in December (76.48 per cent).

Total FX market turnover in January 2019 was $14.91billion, representing a 35.36 per cent ($3.89billion) MoM increase from the turnover recorded in December 2018 ($11.01billion).

According to FMDQ, “The increase in FX turnover in January can be attributed to the 150.61 per cent and 0.61 per cent rise in Member-Clients and Inter-Member trades which was only marginally offset by the 27.55 per cent decrease in Member-CBN3 trades.”

“Contrastingly, turnover at the Investors & Exporters (I&E) FX Window in January 2019 recorded 22.42 per cent ($1.11billion) and 26.86 per cent ($1.41billion) MoM and YoY decreases respectively to close at $3.84billion from the $4.95billion and $5.25billion recorded in December and January 2018 respectively,” FMDQ explained.

Analysis of FX turnover by product type showed that FX Spot was the main driver of the overall increase in FX turnover, with a MoM increase of 462.93 per cent ($7.84billion). FMDQ disclosed that the increase in FX Spot could be attributed to FX inflow for investments in the higher yielding FGN5 fixed income securities.

Conversely, FX Derivatives recorded a MoM decrease of 42.34 per cent ($3.95bn), driven mainly by a 44.89 per cent decline in Member-CBN FX Swaps turnover, while turnover in FX Futures also declined by 35.66 per cent . In January, the 31st Naira-settled OTC FX Futures Contract (NGUS JAN 30 2019) with total open contract of $515.09million matured and was settled on FMDQ, while a new 12-month Futures contract (NGUS JAN 29 2020) with a notional principal of $1.00billion and futures price of $/N364.65 was listed on the OTC Exchange

In January 2019, the Nigerian Naira appreciated against the US Dollar at the I&E FX Window, gaining 97 kobo to close the month at $/N363.03 (from $/N364.00 recorded in December 2018). However, relative to January 2018, the Naira has depreciated by N3.03 ($/N360.00 in January 2018). Similarly, the CBN Official Spot rate appreciated by 25 kobo to close at $/N306.75 (from $/N307.00 recorded in December in 2018). The $/N rate at the Parallel market appreciated by N2.00 to close at $/N361.00 (from $/N363.00 recorded in December).

Total T. bills (including OMO6 bills) outstanding recorded a MoM decrease of N0.16trillion to close at N2.58trillion as the CBN continued mopping up liquidity via its OMO auctions to curtail build-up of inflationary pressure. FGN Bonds remained flat at N8.26trillion as at January 31, 2019. Furthermore, the split in sovereign debt between long and short-term debt as at January was 76:24 (long vs. short term), close to the target ratio of 75:25 outlined in the Debt Management Strategy (2016 – 2019)

Monthly Trading Intensity in the T. bills and FGN Bonds markets decreased marginally from 0.49 and 0.09 in December 2018, to 0.46 and 0.08 in January respectively, as the 12.77 percent rise in T. bills and FGN Bonds outstanding did not result in similar or higher growth in turnover. T. bills within the 6-12 months maturity bracket remained the most actively traded in January 2019, accounting for 44.57 percent of the total FI market turnover.

Weighted average yields on short, medium and long-term maturities on the sovereign yield curve decreased by 0.80ppts, 0.07ppts and 2.18ppts respectively in January 2019.

Yield spread between the 3-month T. bill and the 10-year FGN Bond decreased by 217 basis points (bps) to close at 3.18ppts in January 2019 (1.01ppts in December 2018)

Turnover recorded in the Repos/Buy-Backs segment of the Money Market was N2.45trillion in January 2019, representing a 27.39 percent (N0.92trn) MoM decrease from N3.37trillion recorded in December 2018, and a 31.78per cent (N0.59trn) YoY increase from the turnover recorded in January 2018.

Furthermore, Unsecured Placements/Takings closed the month with a turnover of N49.95billion, representing a 11.68 per cent (N6.60bn) MoM decrease from N56.55billion recorded in December 2018, and a YoY decrease of 58.58 per cent (N70.66billion).

Average O/N7 NIBOR8 decreased by 6.20ppts to close at 19.09 per cent in January 2019 from 25.29 per cent reported for December 2018, indicating an increase in liquidity in the inter-bank market

Total number of executed trades reported on the E-Bond Trading System in January was 13,636 representing a 13.47 percent (2,122) MoM decrease from the number of trades executed in December (15,758), driven by a MoM decrease in T. bills and FGN Bonds trade by 2,059 (14.07 per cent ) and 63 (5.62per cent ) respectively.