Nigeria’s recent transition to a shorter market settlement cycle, intended to accelerate the clearing of stock market transactions, has encountered an early setback after FTSE Russell paused the country’s upgrade to frontier market status.
Following Nigeria’s upgrade earlier this year from an unclassified to a frontier market—effective from September—the organisation stated on Tuesday: “FTSE Russell announces that the reclassification of Nigeria is under review.”
Until the reclassification this March, Nigeria had been excluded from frontier markets for thirty months, following a sharp devaluation of its currency and other FX reforms.
The London-based global provider of market indices is placing the upgrade on hold after Nigeria pivoted this month from a t+2 settlement cycle to a t+1 model, reducing the settlement time by one working day.
The policy shift, one of several ongoing broad reforms in the equity market, aims to reduce clearing times for stocks—a benefit to the local market, as it promises increased activity and liquidity, as well as faster settlement for domestic investors.
Yet it has fuelled concerns that this approach could deter international investors, who, under the new arrangement, must fund trades before transactions can be executed.
“A requirement to prefund equity trades is deemed a negative for the Settlement Cycle (DvP) criterion, which is one of the five core FTSE Quality of Markets criteria required for attaining Frontier market status within the FTSE Equity Country Classification scheme,” the company said.
FTSE aims to communicate its decision on the review to the public by August.
About a year ago, settlement took three business days after the transaction was initiated, before it was shortened to t+2. Now that settlement is one business day, you are putting them under more pressure to take a currency risk that they typically have been avoiding,” an investment analyst, who requested anonymity, told PREMIUM TIMES, referring to foreign investors.
“The level of confidence hasn’t risen enough for you to think that they can now start taking that level of currency risk directly. That may not be the only reason, but it may be a strong reason for the significant pullback that we saw in June,” the analyst added.
The Risk Ahead
The move could further damage foreign investors’ fragile confidence in Nigeria, as the country still strives to earn back overseas investors’ trust as a haven for investments following a prolonged dollar squeeze during the COVID-19 lockdowns, which trapped capital and prompted many to exit.
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Foreign capital inflow into Nigerian stocks dropped 17.4 per cent to ₦400.1 billion in the year to May, relative to the same period of 2025, according to data from Nigerian Exchange Limited.
This is stoking fears that a reversal of Nigeria’s status to an unclassified market may further erode liquidity in equity trading.
“The idea of the FTSE and frontier index was that the inclusion meant we were expecting a good amount of foreign portfolio inflows. You know, anything between $100 million to $400 million going into the equity market,” Arnold Dublin-Green, chief investment officer at FTSE Equity Country Classification scheme which has a significant focus on foreign institutional investment, told PREMIUM TIMES.
“Outside of that, there are active investors who will want to beat the index, and that inflow could be another $400 million or so.”
Nigeria may as well kiss those critical, potential inflows goodbye if it fails to find its way back to the index, Mr Dublin-Green added. Both analysts suggested that FTSE Russell’s decision to put Nigeria’s upgrade on hold could probably have been avoided had there been wide consultations between capital authorities and foreign market participants before the new settlement cycle was introduced.
MSCI, another provider of international stock indexes based in New York—which stated last June that it required more time to appraise Nigeria’s status—will likely take a cue from this development during its own review.
In 2024, MSCI withdrew Nigeria from its Frontier Markets Index after FTSE Russell took the same decision the previous year.
A downgrade to unclassified market status reduces a country’s stock market’s international visibility, making it less visible and accessible to global investors.
