Daily Quotations List (DQL)

FMDQ DQL Methodology

Version 1.0 January 2014

FMDQDailyQuotationsList(DQL)1.
Version1.0January2014

Contents
1.0 Introduction.....................................................................................................................3
2.0 ValuationofSovereignBonds(FGNBonds)....................................................................4
2.1

TradingSovereignBonds.............................................................................................4

2.2

NonTradingSovereignBonds.....................................................................................4

2.3

Standards.....................................................................................................................4

3.0 ValuationofNonSovereignBonds(Agency,StateGovernment,&CorporateSupra
nationalBonds)................................................................................................................4
3.1

TradingNonSovereignBonds.....................................................................................4

3.2

NonTradingNonSovereignBonds.............................................................................4

3.2.1

RiskPremium.......................................................................................................4

4.0 ValuationofTreasuryBills&ForeignExchange(FX)......................................................5
4.1

TreasuryBills...............................................................................................................5

4.2

ForeignExchange(FX).................................................................................................5

4.3

Standards.....................................................................................................................5

5.0 MoneyMarket.................................................................................................................5
6.0 FixingsNIBOR,NITTY&NIFEX......................................................................................5
7.0 BondCapitalisation..........................................................................................................5
8.0 DefinitionofTermsandAbbreviations...........................................................................6

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1.0

Introduction
FMDQOTCPLC(FMDQ)isanoverthecounter(OTC)securitiesexchangewithamissiontoempower
theOTC financial marketstobe innovativeandcredible,insupportoftheNigerian economy.This
missionwouldbeachievedbyprovidingthesecondarymarketwithworldclassmarketgovernance
andmarketdevelopmentservicetothebenefitofmarketparticipantsandinsupportoftheobjectives
ofthefinancialservicesregulators.

FMDQlaunchedtheFMDQDailyQuotationsList(DQL)onNovember7,2013toupgradethemarket
transparencyintheOTCmarkets.

FMDQDQLcoversUSD/Nairaproducts,FederalGovernmentofNigeria(FGN)bonds,Supranational
bonds,Agencybonds,Stategovernmentbonds,Corporatebonds,NigerianTreasurybills(T.bills)and
othermoneymarketinstrumentse.g.CommercialPapers.

TheDQLprovidesclosingpricesforallproductstradingandmodelpricesofnontradingfixedincome
securitiescalculatedbyapplyingaderivedriskpremiumonthesovereignriskfreeyieldcurve.The
DQLalsoprovidesmarketindicativerates/pricesforproductstradingbutwithlowliquidity.FMDQ
DQLwillequallybetheofficialsourcefortheNigerianOTCmarketindexesandfixings,namelythe
NigerianInterbankOfferedRate(NIBOR),NigerianInterbankTreasuryBillsTrueYields(NITTY)and
NigerianInterbankForeignExchangeFixings(NIFEX).

Articulated below are the construction rules (assumptions and market standards) applied in the
closingprices,modelpricesandthemarketindicativerates/pricescontainedintheFMDQDQL.

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2.0

ValuationofSovereignBonds(FGNBonds)

2.1

TradingSovereignBonds
Theclosingpriceofatradingsecurityisthemodeofthesamplequotes.Wherethequotesindicate
adualmodalprice,thebetterbid(i.e.thehigherofthetwoquotes)isselectedastheclosingbidprice.
Theofferpriceisderivedbyaddingaspreadonthebid.

NonTradingSovereignBonds
YieldsarederivedbyinterpolatingforthecorrespondingTermtoMaturities(TTMs)offtheFGNbond
theoreticalspotratecurve.TTMsarederivedbasedontheunderlyingfeaturesofthebondasfollows:
BulletPrincipalRepayment:
TTM=BondMaturityDateValuationDate
AmortisingPrincipalRepayment:TTM=WeightedAverageLife

2.2

2.3

Standards
Benchmark
2Y,3Y,5Y,7Y,10Y&20Y

<1Y
0.50%

*Spread
3Y
0.15%

>3Y
0.30%

*Abovespreadsareappliedfortradingandnontradingbonds.
3.0

ValuationofNonSovereignBonds(Agency,StateGovernment,&CorporateSupranational
Bonds)

3.1

TradingNonSovereignBonds
ClosingpricesarederivedbytakingthemodeofthesampleoffirmbidquotesshownbyFMDQ
BondSpecialists.Firmquotesarebidpricesmaintainedforatleastthirty(30)minutesduringtrading
hours.Wheretheselectionindicatesadualmodalprice,thebetterbid(i.e.thehigherofthetwo
quotes)isselectedastheclosingbidprice.

3.2

NonTradingNonSovereignBonds
Nontrading Agency, State Government & Corporate bond prices are model prices derived from a
modelled yield. The modelled yield is calculated by adding a risk premium to the valuation yield
(correspondingTTMyieldinterpolatedofftheFGNbondtheoreticalspotratecurve).Thisisusedto
calculatethebondbidprice.

3.2.1 RiskPremium
Yieldsonnonsovereignbondsaretypicallyhigherthantheyieldsdemandedbyinvestorsofsovereign
bonds due to the higher risks on nonsovereign bonds. The methodology appreciates the need to
factorariskpremiumduetothehighercreditandliquidityrisksinthecalculationofthemodelprices
onbonds.Themethodologyforthederivationandorderofapplicationofriskpremiumforallmodel
pricesofnonsovereignbondsisdetailedbelow:

First choice: apply risk spread on latest acceptable trade for the respective bonds i.e.
determinethespreadbetweenthebondyieldonthelatestacceptabletradeandtheFGN
bondspotrateofcomparableTTM.LatestacceptabletradesaretransactionsofN25.00mm
minimumtradesizeforbondswithoutstandingvaluesofN20.00bnandaboveor0.10%trade
sizeforbondsofoutstandingvaluesbelowN20bn.

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Secondchoice:applyriskspreadatissuancei.e.determinethespreadbetweenthebondyield
atissuanceandtheFGNbondspotrateofcomparableTTM.However,wheretheriskspread
atissuanceislessthan1%(100basispoints),abaseriskpremiumof100basispointsisapplied.

4.0

ValuationofTreasuryBills&ForeignExchange(FX)

4.1

TreasuryBills
Theseareclosingpricesbasedonamodalselectionprocess(refsec2.1)
*Billswithseven(7)daystomaturity(DTM)aredelistedfromtheT.billsvaluationtemplatewhichimpliesthat
thebillhasstoppedtradingonatwowayquotebasis.
**NontradingT.bills(outstandingvaluelessthanN50bn)arenotlistedontheDQL.

4.2

4.3

ForeignExchange(FX)
Spotratesareclosingratesbasedonamodalselectionprocess(refsec2.1),whileFXForwardsclosing
ratesarederivedbytakingasimpleaverageofthemarketindicativequotesobtained.

Standards
o Benchmark:
Product
T.bills
FXForwards

o Spreads:

Tenor
Spread(%)

5.0

Benchmark
1M,3M,6M&12M
7D,14D,21D,1M,2M,3M,6M,1Y

T.bills
AllTenors
0.25

FX
Spot
0.10

MoneyMarket
Money Market and Repo closing rates are derived by taking a simple average of market quotes
obtained.

6.0

FixingsNIBOR,NITTY&NIFEX
All fixings are derived by sorting quotes obtained from the preselected reference institutions in
descendingorder.Outliersarethereaftereliminated(highestandlowest20%ofquotes)andasimple
averageoftheresultant60%quoteisdetermined.Theresultforeachfixingisderivedinfourdecimal
places.

7.0

BondCapitalisation
Individualbondcapitalisationisderivedbymultiplyingthebondmidpriceandtheoutstandingvalue
oftherespectivebond.Themidpriceisdeterminedbycalculatingthesimpleaverageoftheclosing
bidandofferpriceoftherelevantbond.

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8.0

DefinitionofTermsandAbbreviations
D
DQL
FGN
FX
M
NIBOR
NIFEX
NITTY
T.bills
TTM
USD
ValuationYield
Weighted
AverageLife
Y

Day
DailyQuotationslist
FederalGovernmentofNigeria
ForeignExchange
Month
NigerianInterbankOfferedRate
NigerianInterbankForeignExchangeFixings
NigerianInterbankTreasuryBillsTrueYields
TreasuryBills
TermtoMaturities
UnitedStateDollars
ValuationyieldsarederivedbyinterpolatingforthecorrespondingTTMsoffthe
FGNbondtheoreticalspotratecurve
The average number of years for which unpaid principal remains outstanding
derivedusingtheamortisationscheduleextractedfromthebondindenture
Year

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