The International Organisation of Securities Commissions has cautioned the regulators of the Nigerian capital market on the need for proper regulations of the derivatives market.

The international body gave the caution against the backdrop of plans by the Nigerian Stock Exchange to develop its derivatives market in the next few years.

A statement on Friday, signed by its spokesperson, Ms. Carlta Vitzthum, noted that if proper cautionary measures were not adopted, the derivatives could lead to a crash for the Nigerian market.

To this end, the statement added that there was the need for effective regulation of the market to avoid another major crash similar to the one which occurred in 2008.

Vitzhum in the statement, noted that before 2008, the derivatives market intermediaries were not properly regulated, which according to her, led to sharp practices and other market anomalies as witnessed during the 2008 financial crises.

“Historically these derivatives market intermediaries often have not been subject to the same level of regulation as participants in the traditional securities market. Without sufficient regulation, some DMIs operated in a manner that created risks to the global economy that manifested during the financial crisis of 2008,” she stated.

She noted that owing to this, IOSCO has published a report, titled, ‘International Standards for Derivatives Market Intermediary Regulation,’ which according to her, recommends high-level international standards for the regulation of market participants that are in the business of dealing, making a market or intermediating transactions in over-the-counter derivatives.

She noted that the report, was based on the commitment by G-20 leaders in 2009 to reform the Over-the-Counter derivatives market in response to the crisis.

According to her, the report has been fashioned in such a way as to take into consideration, the distinctions between the OTC derivatives market and the traditional securities markets, and also the differences in jurisdictional approaches of international market authorities.

According to her, the report draws on the extensive work IOSCO has done on traditional securities market intermediaries, in an effort to harmonise the recommendations applicable to DMIs and to avoid the creation of unnecessary burdens on entities that act as both traditional securities market intermediaries and DMIs.

She said, “The recommendations in the Report are intended to address DMI obligations that should help mitigate systemic risks; requirements intended to manage counterpart risk in the OTC derivatives markets; and protect participants in the OTC derivatives markets from unfair, improper or fraudulent practices.

“The recommendations are made regarding substantive areas such as Registration/licensing standards; capital standards or other financial resources requirements and consistency among market authorities with respect to the regulation of DMIs is essential to the successful oversight of the global OTC derivatives market particularly because many DMIs operate in multiple jurisdictions.”

Source: Punch/Udeme Ekwere