LCFE Taps FMDQ Clear to Clear Petroleum Trades as It Prepares a Fuel Market

LAGOS – The Lagos Commodities and Futures Exchange (LCFE) has signed a memorandum of understanding with FMDQ Clear Limited for FMDQ Clear to clear and settle petroleum liquids trades on LCFE’s electronic platform, BusinessDay reported. The deal is a step toward an organised exchange market for fuel products in Nigeria.

The deal

Under the MoU, signed on 12 October according to Vanguard, FMDQ Clear would stand between buyers and sellers as central counterparty, taking on clearing, settlement, collateral and risk management. LCFE would keep its regulatory responsibilities for petroleum liquids clearing. Further negotiations and definitive agreements are required to make the arrangement operational.

LCFE is licensed by the Securities and Exchange Commission to run trading in agricultural commodities, solid minerals and metals, and petroleum liquids. FMDQ Clear is an SEC-registered central counterparty for derivatives, commodities and other instruments.

LCFE Managing Director Akin Akeredolu-Ale said using FMDQ Clear’s existing systems would save the exchange the time and capital of building its own clearing house.

Building a fuel market

LCFE secured its licence from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in August, and at least 10 petroleum traders have committed to take part, BusinessDay reported earlier. The exchange plans two-way quotes, standardised contracts and licensed collateral managers.

Akeredolu-Ale has acknowledged that a licence alone does not create a credible pricing benchmark, Nairametrics reported in October. That will depend on sustained trading and broad participation by buyers and sellers.

Why it matters

Nigeria’s fuel prices are set through a fragmented mix of depot quotes and private deals after the end of subsidies and the start of Dangote refinery supply. A transparent exchange price could help manufacturers, airlines and transport firms plan costs, and could give lenders better collateral data. A central counterparty reduces the risk that one side of a trade fails to pay or deliver, which is often a barrier to larger institutional participation.

Sources

• BusinessDay: LCFE, FMDQ Clear partner to strengthen petroleum liquids market infrastructure
• Vanguard: LCFE, FMDQ sign MoU to strengthen petroleum liquids market infrastructure
• Nairametrics: NMDPRA licence: LCFE targets transparent petroleum pricing