How FMDQ is Cashing out from Central Bank Patronage

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FMDQ and CBN

About 67 percent of the total revenues of N31 billion earned by FMDQ Group, a securities exchange and self-regulatory organization (SRO) in 2020, were fees paid to the exchange by the Central Bank of Nigeria (CBN).

MoneyCentral’s analysis of FMDQ’s latest financial statement shows that FMDQ is benefitting from its monopoly as the major platform where the CBN’s FX futures contracts are traded.

FMDQ earned a total of N20.819 billion in fees (futures management and margin management) charged to the CBN in 2020 (that MoneyCentral can verify), which was up 86 percent from N11.17 billion CBN fees earned in 2019.

In 2020, the total revenue (excluding interest income) earned by FMDQ Clear (its subsidiary) was N24.32 billion, a significant growth of 54 percent from the N15.76 billion revenue recorded in 2019.

The Clearing & Futures Management Fees earned on the OTC FX Futures Product contributed the bulk of the revenue generated in 2020.

Futures Management Fees, earned from the trade matching and overall administration of executed OTC FX Futures contracts, increased by 43 percent from 2019 to N13.711 billion in 2020.

Futures management fee is a monthly fee earned on the maintenance and valuation of outstanding FX futures contracts.

The fee is determined monthly as 0.025% of the face value of outstanding FX futures contracts and is apportioned based on the number of days the transaction was outstanding for each month.

FMDQ also earned N7.108 billion on so-called margin management fees from the CBN.

The margin management income relates to the 1% management fee charged to the CBN on the management of margin funds.

This includes 0.375% which is recognised as an expense with respect to 0.125% and 0.25% for settlement agency and investment management fees respectively.

As the FMDQ revels in the boom fueled by being the sole platform for trading of CBN FX futures, it has also rewarded its CEO Bola Onadele.Koko with billions of naira in new stock options.

FMDQ CEO Bola Onadele. Koko received stock options during the 2020 financial year that are now worth N4.66 billion, according to a company filing seen by MoneyCentral.

The FMDQ Group granted 486,683,000 share appreciation rights (SARs) to Onadele Koko, the Group Managing Director/Chief Executive Officer (GMD/CEO) that entitles him to a cash payment.

Under the compensation arrangement, Onadele Koko is eligible for options to buy up to 486,683,000 shares of stock at an exercise price of N1 each.

A stock option is the right to buy a specific number of shares of company stock at a pre-set price, known as the “exercise” or “strike price”.

FMDQ shares are not listed but the firm calculated the share price of the SARs as N9.58 per share valuing the total share options package at N4.66 billion at the end of 2020, according to MoneyCentral’s calculations.

“The Board would have approved it but you know when majority of the Board members are operators within his SRO entity, and when majority of the directors, who are bank CEOs really are not paying much attention to the value of the business, that’s what you get,” a market source speaking on condition of anonymity, told MoneyCentral.

“MoneyCentral’s reporting may actually be an eye opener for interested parties,” the source said.

Major shareholders of FMDQ include the Central Bank of Nigeria (CBN) at 15.41%, Financial Markets Dealers Association (FMDA) at 12.19%, Access Bank Plc at 6.93% and NSE Consult Limited at 6.42%.

Guaranty Trust Bank Plc, UBA Plc, Zenith Bank Plc and Stanbic Bank Plc, are also shareholders of FMDQ.

The fair value of the stock options was determined using the binomial model adjusted for exit rate and vesting period, FMDQ said in the filing.

The amount of the cash payment is determined based on the increase in the share price of the Holding Company between grant date and the time of exercise, equivalent to 6.4 years of service and Key Performance Indicators (KPIs) as indicated in the CEOs employment contract.

The KPIs or operating targets to be met by Onadele. Koko before the options can be exercised were not disclosed in the filings.

FMDQ, a financial markets infrastructure group reported revenue that rose by 44.45 per cent to N31 billion in 2020, from N21.46 billion in 2019, while after-tax profit hit N11.239 billion in 2020 up 9.79 percent.

The FMDQ share price at the end of 2020 (N9.58 per share) implies a market capitalization of N93.21 billion for the firm.

The options outstanding at 31 December 2020 had an exercise price of N1.00 following the issue of bonus share during the year. The weighted-average contractual life of the option is 6.4 years.

The total stock options owned by the CEO Onadele Koko in 2020 were equivalent to 5% of the company’s stock.

FMDQ carried liabilities of N2.509 billion as at December 2020 arising from the stock options issued to its CEO.

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