FMDQ Clear and Frontclear partner on first-class clearing structure

FMDQ Clear Limited (FMDQ Clear), a wholly-owned clearing and settlement subsidiary of FMDQ OTC Securities Exchange, and Frontclear, a Netherlands-based development finance company, have joined to realise a first in the Nigerian market by facilitating a clearing structure to strengthen the OTC market liquidity.

FMDQ Clear, a SEC-registered central clearing house, positioned to deliver end-to-end clearing and settlement services that will help enhance integrity and eliminate the inherent risks to bilateral trades in the Nigerian capital market, will be backed by Frontclear’s core financial guarantee product, thereby improving the creditworthiness of participating counterparties and reducing initial set-up costs.

The Frontclear guarantee would, in practice, function like a settlement/credit guarantee fund typical to more developed financial markets. Upon default of a clearing member, Frontclear guarantees any mark-to-market losses incurred by any other counterparty clearing or dealing member(s), and up to a pre-agreed maximum amount.

With this guarantee fund, FMDQ Clear can significantly improve access to a breadth of financial products such as interest rate and currency derivatives, and repurchase agreements (repos).

FMDQ Clear, which will be the first of such infrastructure in Africa, with a third-party settlement guarantee arrangement that improves on settlement finality, is positioned to becoming a world-class central clearing house.

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According to Mr Bola Onadele. Koko, MD/CEO, FMDQ Group, “In our stride to position our markets on the path of increased liquidity and global competitiveness, the FMDQ-Frontclear guarantee fund initiative is a landmark achievement positioned to engender market integrity, which will bolster liquidity and financial system stability in the Nigerian economy.”

A joint Frontclear Technical Assistance Programme (FTAP) project explored the feasibility of establishing clearing infrastructure in Nigeria as well as the most suitable design of such infrastructure for the Nigerian market.

This effort was made possible with the support and input from key Nigerian financial services regulators, including the Securities and Exchange Commission, Nigeria (SEC) and the Central Bank of Nigeria (CBN), as well as the local banking industry.

Mr Philip Buyskes, Chief Executive Officer of Frontclear said “We are excited to play such a catalytic role towards improved liquidity and price discovery in Nigeria.  Working with FMDQ is a natural fit.”