1. Global Competitiveness Operational Excellence Liquidity Diversity FMDQ OTC Securities Exchange FMDQ CMC Update Report Dipo Odeyemi Senior Vice President Divisional Head, Market Operations & Technology April 13, 2016

2. Outline 1 Part 1FMDQ OTC Market Sizing2 Part 2 DCMD Project Implementation Update 4 Part 3 Bilateral Repo Supported with Collateral Management 5 Part 4 Dealing Member Specialist (DMS) Project Plan 6 Part 5 Bond Specialist System (BSS) 8 Part 6 Short-Term Bonds (STBs) 9 Part 7FMDQ Listings and Quotations10 Part 8Non-Interest Capital Market Products Development (Sukuk)11 Part 9OTC Derivatives Market12 Part 10 FMDQ Market Development Workgroup (FMDW) 13 14 FMDQ Market Surveillance

3. Outline 2 FMDQ OTC Market Sizing (January – December 2015) Other bonds include Agency, Sub-national, Corporate and Supranational Bonds mm - million Source: FMDQ Data Portal: Figures reported by Dealing Members on a week ending basis

4. Outline 3 FMDQ OTC Market Sizing (January - February 2016) Other bonds include Agency, Sub-national, Corporate and Supranational Bonds mm – million Note: Figures may be subject to change due to potential adjustments from Dealing Members Source: FMDQ Data Portal: Figures reported by Dealing Members on a week ending basis

5. Outline 4 DCMD Project Implementation Update Steering Committee (SteerCo) Transformation Committee (TransCo) Transformation Committee (TransCo) Project Management Office (PMO) Regulation Consolidation Product and Infrastructure Market Liquidity & Enhancement Investor/ Issuers & Intermediaries Engagement /Education Investor/ Issuers & Intermediaries Engagement /Education PMO Advisers Key Next Steps ActivityDates Committee Kick-off meetings April 21 & 22, 2016 Formal Project Launch To be agreed Committee activation in progressPMO activated Highlights

6. Outline 5 Bi-lateral Repo supported with Collateral Management S/N Initiative /Product Update 1 Bi-lateral Repo supported with Collateral Management  Having recognised the importance of a liquid and vibrant repo market, and the need to establish a comprehensive best practices for the Nigerian repo market, FMDQ proceeded to deliver on the project with the incorporation of a robust Collateral Management System (CMS) as a critical success factor for the initiative  Management completed the documentation of the draft Repo and Collateral Management Framework (Framework) and exposed the draft to FMDA Money Market and Bond Workgroups for review. Feedback were received from the Workgroup Members and incorporated into the Framework accordingly  FMDQ & FMDA in collaboration with the Debt Management Office (DMO) and Central Bank of Nigeria (CBN) engaged the National Pension Commission (PenCom) on the development of a Repo Market that would inspire confidence and qualify for pension fund assets  Consequently, an all Stakeholders’ meeting was held on March 10 th to discuss the various options and identify the Commissions’ preferred model while also addressing concerns raised  A final product paper has been sent to the Commission with a request for a No Objection to pension funds participating in the Repo market. Activation of the repo market will commence this quarter

7. Outline 6 Dealing Member (Specialist) DMS S/NInitiativeUpdate 2. Dealing Member Specialist (DMS)  FMDQ finalised the draft Framework covering the project roll-out plan, minimum registration requirements, operational modalities and systems requirements for the market segment and proceeded to implement the various action points with the activation of the new membership category  FMDQ held a Simulation Workshop on March 23 & 24, 2016 with DMSs who have successfully completed their application process, to familiarise them with Q-Deal Trading System developed by FMDQ  Following the Simulation Workshop, DMSs commenced a trial period of one (1) month (April 4-28, 2016) to further consolidate their understanding of trading system and DMS market rules ahead of the commencement of live trading on the FMDQ Platform  Activation of live trading in the DMS Market is scheduled for May 3, 2016

8. Outline 7 Dealing Member Specialist (DMS) Project Plan *Scheduled date: March 23 – 24, 2016 Note: DMs: Dealing Members; 2WQ: Two-way quote; MTM: Mark-to-Market SEC: Securities Exchange Commission; T.bills: Treasury Bills PLANNING  Final DMS Framework  Application Process December 2015 IMPLEMENTATION  2-day Simulation Workshop*  Dummy DMS 2WQ Trading - one (1) month duration ‒ Dealing System User Acceptance Tests  Payment of Membership Dues  Grant Access to Dealing System Q1/April 2016  Assignment of Initial Trading Capital  T.bills Trading Only  Daily End-of-Day Position Close-Out  No Client trades MODIFICATIONS  Settlement Bank Sign- Ons  Dealing System Upgrade: −Real-Time MTM −Liquidity Providers (DMs) Integration  E-bond Price Discovery Q2 2016  T.bills Trading with Settlement Banks with Clearing Services  Client Services  Dealing with DMs  E-bond Price Discovery CLOSING  Preparation of DMSs for SEC Registration  Licencing by FMDQ  SEC Registration  Variable Licencing −T.bills Only −T.bills + Bonds Q3 2016  Revised Trading Collateral Requirements DMS Market Only Integrated Market Full Market

9. Outline 8 Bond Specialist System (BSS) S/N Initiative/ Product Update 3. Bond Specialist System (BSS)  FMDQ developed the Bond Specialist System (BSS) to boost the debt capital market and enhance the liquidity of non-sovereign bonds through the commitment of FMDQ Dealing Members, to make firm bids and best-effort offer quotes to willing participants in the non-FGN bond secondary market  Management completed the documentation of the draft BSS Framework and exposed to the systemically important financial institutions (SIFIs) who had expressed interest in developing this initiative with FMDQ  Feedback were received from some Dealing Member (Banks) (DMBs), and the Framework updated accordingly  Management also seek to expand the coverage for this initiative by pre-qualifying institutions using the FMDQ Bonds League Table for the year 2015. Based on the foregoing, the number of potential Bond Specialists is currently at twelve (12) institutions  The BSS Rules and Agreement are currently being developed, and will be shared with prospective Bond Specialists. The BSS initiative is scheduled to be activated Q2 2016.

10. Outline 9 Short-Term Bonds (STBs) S/N Initiative/ Product Update 4. Short Term bonds (STBs)  In furtherance to drive growth and development in the Nigerian Debt Capital Market (DCM), FMDQ engaged various stakeholders across the DCM value chain (issuing houses, corporates, investors etc.) and received overwhelming feedback that there exists a funding gap between the money and capital markets which is yet to be explored within Nigeria’s financial markets  In response to this feedback, FMDQ engaged SEC and emphasised the need for the introduction of STBs which would effectively bridge the funding gap between short-term issuances like Commercial Papers (“CPs”) and the traditional medium and long-term bonds  STBs can be defined as bonds with maturities of twelve (12) months and up to three (3) years i.e. between CPs with maximum tenor of 270 days i.e. nine (9) months and the traditional “medium and long-term” bond tenors (typically issued for three (3) years and above)  Furthermore, the STBs Registration Process which outlines the stages, responsibilities and actions involved in the registration and listing of STBs has been documented and forwarded to SEC  Awaiting feedback from SEC

11. Outline 10 FMDQ Listings and Quotations – 2016 S/NUpdateDate Listed 5Listings and Quotations  Bond Listings: − Transcorp Hotels PLC ₦ 10.000,000,000.00 Series 1: 7- Year 16.0% Fixed Rate Unsecured Bonds under a ₦ 30.00bn Medium-Term Bond Programme on the platform January 18, 2016 − Transcorp Hotels PLC ₦ 9,758,000,000.00 Series II: 5- year 15.5% Fixed Rate Unsecured Bond under a ₦ 30,000,000,000.00 Medium Term Bond Programme on the platform February 2, 2016 − FCMB Financing SPV PLC ₦ 23,185,000,000 Series II 5- Year 15% Fixed Rate Unsecured Bond under a ₦ 100,000,000,000 Debt Issuance Programme February 18, 2016  CP Quotations: − Guinness Nigeria PLC Series II - ₦ 7,225,956,000.00 & Series III ₦ 2,774,044,000.00 Commercial Paper Notes under a ₦ 10,000,000,000.00 Domestic Commercial Paper Issuance Programme were quoted on the platform February 14, 2016

12. Outline 11 Non- Interest Capital Market Products Development S/NInitiativeUpdate 8.Development of Non Interest Capital Market Products (Sukuk)  To further deepen the DCM space, FMDQ has taken a keen interest in the non-interest capital markets (“NICM”) and has developed Draft Sukuk Listing Rules (the “Rules”) which lay out the requirements for the listing of Sukuk on the Exchange  The Rules, which are in alignment with the current regulatory framework of the Commission for Sukuk as provided in the Securities and Exchange Commission (SEC) Rules and Regulations 2013, were also developed following research into global best practices with examples from notable NICM hubs such as Malaysia and Dubai  The Rules sets out the eligibility criteria for Sukuk issuers and their issues, for the admission of Sukuk issues to the Quotations List of the Exchange, and also prescribes the post-Listing/Quotation compliance requirements for all listed Sukuk issues, in order to promote continuous disclosure and transparency in furtherance of FMDQ’s investor protection mandate

13. Outline 12 OTC Derivatives Market S/NInitiativeUpdate 9.OTC Derivatives Market  The engagement of UK based Salonika Consultancy Consortium to conduct the Feasibility Study on the Nigerian over-the-counter (OTC) Derivatives Market (with focus on interest rate and currency derivatives) marked the beginning of the journey to deliver a vibrant derivatives market in Nigeria  The expected outcomes of the Study will be the Feasibility Report and Implementation Roadmap for Fixed Income and Currency (FIC) Derivatives Development in Nigeria, with Project implementation to commence 2017

14. Outline 13 FMDQ Market Development Workgroup (FMDW) S/NInitiativeUpdate 6. FMDQ Market Development Workgroup (FMDW)  FMDW inaugural meeting was held in October 2015. Workgroup Members reviewed the Workgroup Framework and received an update on FMDQ Market Development Initiatives. The Workgroup expressed satisfaction with the Workgroup’s focus and efforts of the Board and Management of FMDQ in establishing the Workgroup  At the subsequent meeting held in December 2015, a comprehensive Market Development Initiatives Report for 2016 was developed and submitted to FMSC (Financial Market Sub-Committee) during the Bankers’ Committee Retreat  At the last Workgroup meeting held in April 2016, an update on all Market Development Initiatives was presented to all Workgroup Members

15. Outline 14 FMDQ Market Surveillance S/NInitiativeUpdate 7.7. Implementation of E- Bond Trading Infractions and Penalties Guide  In a bid to strengthen market discipline and sustain public confidence in the markets, the Central Bank of Nigeria (CBN) in a letter dated January 6, 2016 charged all Dealing Members (DMs) to ensure strict compliance with all FMDQ Rules as they would be required to disclose all infractions and the resultant penalties in their audited financial statements going forward  There is significant improvement in DMs’ compliance with the E-Bond Trading Rules which resulted in a steady decrease in the number of DMs that were penalised from November 2015 to March 2016  FMDQ has commenced the automation of spreads compliance monitoring on the Daily Surveillance Report (DSR) to enable self-monitoring of the infraction by DMs. Upon conclusion of the automation, FMDQ plans to activate the Penalties Regime on arbitrary widening of spreads compliance by May, 2016, after concluding pilot test with DMs  To ensure the integrity of price formation, price discovery, trade data and fixings published by the Exchange, FMDQ has commenced the reconciliation of trade data submitted by its Dealing Members.

16. Global Competitiveness Operational Excellence Liquidity Diversity