Private investors in commodity exchanges have faulted the plan by the Central Bank of Nigeria (CBN) to inject N50 billion into the Nigeria Commodity Exchange (NCX), describing it as a move that may stifle private sector participation in the commodity exchange ecosystem.
They called for enabling policies to promote the development of commodities ecosystem including injection of such funds to support farmers, aggregators, miners, refiners, processors and all the other participants in the commodities ecosystem.
Private investors under the aegis of Association of Securities Dealing Houses of Nigeria ( ASHON), the promoters of Lagos Commodities and Futures Exchange (LCFE), said government should rather initiate policies that will enable commodities exchanges to contribute towards Nigeria’s economic growth and development.
They noted that the proposed capital injection of N50 billion into the NCX might have unintended effect of creating uneven playing ground for other commodities exchanges that are privately promoted.
They called for a level- playing field for all operators of commodities exchanges in Nigeria, pointing out that an enabling operating would enhance optimal performance of everyone in the commodities exchanges’ value chain.
According to ASHON, to enable the operators in the commodities ecosystem operate optimally, the government should enact relevant policies that prevent illegal mining by foreigners, ensure autonomy of the capital market apex regulator, the Securities and Exchange Commission (SEC), protect export proceeds, legislate laws to enable agricultural commodities to be linked to financial markets and fungibility and support for pension funds for increased participation in the commodities ecosystem.
In a statement signed by its Chairman, Chief Onyenwechukwu Ezeagu, ASHON stated that while any act by the Federal Government to stimulate the growth and development of the commodities ecosystem through the commodities exchanges is highly beneficial to the entire ecosystem, this must be directed with deep understanding of the ecosystem and its needs.
They pointed out that commodities exchanges play an important role in the commodities ecosystem because they introduce structure, transparency, and price discovery into the system, but commodity exchanges are not commodity traders, as commodities exchanges are simply structured platforms that deal in commodities spots and commodities securities in multi-asset classes as approved by SEC.
“Although this announcement is a welcome development, it is also important to note that any intervention into one Commodities Exchange creates an uneven playing field that defeats the benefits of healthy competition among the participants in the ecosystem. It is also important to note that this injection of funds is better served within the ecosystem to support the farmers, aggregators, miners, refiners, processors and all the other participants in the commodities ecosystem.
“To encourage the privately owned commodities exchanges, the government can ensure an open liaison opportunity between its agencies and the commodities exchanges to create the opportunity for joint stakeholder sensitisation forums for commodity participants and regulatory bodies, committees for the development of financial funds and instruments to be listed on the commodities exchanges, partnerships for the accumulation of data to support the ecosystem such as warehouse distribution, commodities distribution and commodities consumption and engagements for the development of legal and regulatory framework for effective Commodities trading,” ASHON stated.
According to ASHON, support for the ecosystem can be provided in terms of sensitisation programmes for all the participants to educate them on the certification and standardisation requirements for commodities, relevant production practices, packaging best practices and cold chain equipment.
They added that support can also be provided by creating programmes for leasing heavy equipment, acquiring enhanced seedlings, accessing effective storage and cold chain facilities and many other programmes that enhance the entire commodities ecosystem.
“Commodities exchanges like Lagos Commodities and Futures Exchange (LCFE) carry on business in exchange traded notes, issue commodities securities with the active participation of other capital market operators, like dealing member firms, issuing houses, a depository, settlement banks, accredited certification agents, collateral managers and insurance companies under the legal framework of the Securities and Exchange Commission and its approval.
“Commodities exchanges provide a wide array of investible securities other than the traditional capital market financial instruments. Not only does it provide the option for investors to partake in the $1 trillion economy that is the Nigerian commodities ecosystem, but it also provides the opportunity for investors and commodity participants to hedge against future risk by investing in derivative instruments backed by commodities. Commodity exchanges also provide the opportunity for investors to invest in capital raising instruments such as Exchange Traded Notes which are asset —backed,” ASHON stated.
– The Nation