With the consent of the Central Bank of Nigeria (CBN), the FMDQ OTC plc has brought live into the once moribund Commercial Paper (CP) market.
Commercial Paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations and is backed only by an issuing bank or corporation’s promise to pay the face amount on the maturity date specified on the note.
For investors in the financial market, Commercial Paper is the largest money market instruments and it has long been viewed as a safe haven for investors seeking low risk.
Like treasury bills, yields on commercial papers are quoted on a discount basis – the discount return to commercial paper holders is the annualised percentage difference between the price paid for the paper and the par value using a 360-day year.
Desirous of entrenching governance and transparency in the Nigerian OTC market, FMDQ OTC plc said it identified the need for a robust structure around the issuance and quotation of Commercial Papers (CPs). This, it seeks to achieve, through its market development initiative that provides price/value data and detailed issuers’ information to stakeholders – investors, issuers and regulators.
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The debt capital-focused securities exchange – FMDQ has developed the Commercial Paper Quotation Process (CPQP) to revitalise the Nigerian money market and further enhance transparency at the short end of the corporate yield curve. In support of this process, it also released its Commercial Paper Quotation Rules (CPQR) to govern the quotation of CPs on its platform.
These rules have been adopted from the CBN guidelines on the Issuance and Treatment of Bankers’ Acceptances and Commercial Papers (November 18, 2009) and enhanced through wide consultations with stakeholders.
Sequel to the release of its Commercial Paper Quotation Process and Rules, FMDQ OTC plc (FMDQ) last Monday admitted the first commercial paper (CP) for quotation on its platform.
The quotation of the Stanbic IBTC Bank plc (Stanbic IBTC Bank) N100bn Multi-Currency Commercial Paper Issuance Programme” on the FMDQ platform ushers in the new era of short-term corporate papers to the Nigerian OTC market. There are indications that more corporate CPs will be admitted on this platform.
“This quotation provides the necessary visibility and liquidity for the secondary market trading of CPs. With the FMDQ Commercial Papers Quotation Process and Rules put in place, investors in the Stanbic Bank CP can have confidence in their investment in terms of transparency and liquidity,” FMDQ OTC plc said.
The introduction of CP quotation in the Nigerian financial market serves as a first step towards the provision of unprecedented transparency and governance in the CP market.
FMDQ, through this initiative, proposes to build a vibrant CP market by providing price/value data and detailed issuers’/issue information on FMDQ quoted CPs to stakeholders – investors, issuers and regulators – thereby strengthening the governance of the CP market, positioning the money market for improved price formation and eventually, the emergence of a transparent corporate interest rate fixing in the Nigerian OTC financial market.
The re-organisation of the CP market has come at an opportune time as banks, in compliance with Basel 3 capital and liquidity provisions, are beginning to re-position their balance sheets.
An active and vibrant CP market is also of tremendous benefit to domestic and offshore investors – fund managers, pension fund administrators (PFAs), other corporates etc. – seeking investments in alternative asset classes and to corporates desiring more efficient ways to raise funds.
In South Africa for instance, its Commercial Paper primary market is very active and is tapped by corporate issuers and state-owned companies. The definition of Commercial Paper in South Africa has less to do with its tenor, and CP in South Africa can have a maturity longer than one year.
