CBN, Citibank Execute First Naira-Settled OTC FX Futures of $20m

Central bank confirms talks on planned resumption of dollar supply to BDCs

The first Naira-settled over-the-counter (OTC) foreign exchange (FX) Futures on the FMDQ OTC Securities Exchange was yesterday executed between the Central Bank of Nigeria (CBN) and Citibank Nigeria Limited.

Although the FMDQ which disclosed this on its website, did not give further details about the transactions, THISDAY gathered from a reliable source in the market that the total amount of the FX Futures contract was $20 million.

“That money will come into Nigeria and in the short-medium term, as FX inflows into Nigeria increases, we expect to see an improvement in the liquidity position of the market,” the source who pleaded to remain anonymous said.

But at the end of trading yesterday, the exchange rate for the OTC FX Futures for one-month closed at N279/$1; while the two-month rate due for settlement on August 24 closed at N277/$; the three-month rate due for settlement on September 28 closed at N275/$, and the 4-month rate due for settlement on October 26 closed at N267/$1. In addition, while the 5-month OTC FX Futures closed at N260/$; the 6-month rate N250/$1; the 1-year rate closed at N225/$1.
The Naira-settled OTC FX Futures contracts was launched on Monday when the CBN sold naira-settled OTC FX Futures contracts of non-standardised amounts for different tenors from one month through to 12 months.

The Managing Director/CEO of FMDQ, Mr. Bola Onadele, had described the naira-settled OTC FX Futures product was a major milestone in the evolution of Nigerian financial markets.
“The futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals, etc., to hedge (not speculate), cope with exchange rate risk.

“It also affords the CBN a greater opportunity to manage exchange rate volatility, thus achieving greater market confidence, liquidity, improvement in business planning, job security, employment, better allocation of resources, global competitiveness of the Nigerian financial markets, and all in all, a thriving economy,” Onadele said.

Apparently excited by the cheering news on about the Naira-settled OTC FX Futures deal, the naira appreciated against the dollar by N1.09 on the NIFEX as it closed at N281.23 to a dollar yesterday, stronger than the N282.32 to a dollar it closed on Tuesday. Also, on the parallel market, the naira ended on a positive note as it gained N4 to close at N352 to a dollar,stronger than the N356 to a dollar it closed on Tuesday.

Meanwhile, the central bank yesterday confirmed that it had been discussing with members of the Association of Bureau De Change of Nigeria (ABCON) on how to accommodate the currency dealers in the new forex regime.

Deputy Director, Financial Policy and Regulation Department, CBN, Mr. Anthony Ikem, made this known while speaking at an interactive session on the flexible exchange rate policy in Lagos yesterday.

Ikem said the operators’ proposal to participate at the interbank market was under consideration.
According to him, the central bank recognises the BDC sub-sector as a critical segment of the market and so was working on how to accommodate them in the new forex regime.
He urged the bureau de change operators to exercise patience, saying the CBN was aware of the challenges confronting the sub-sector.

He added: “The CBN is asking the BDCS to exercise patience. The New policy is still being tested to see how it would be later.Even as the policy is being tested, the CBN still understands the role of the BDCs in the country. They are still relevant in the scheme of the affairs of the country.”

Earlier in his presentation, the Acting President, ABCON, President, Alhaji Aminu Gwadabe, appealed to the CBN to restore and enforce the self-regulatory status of ABCON and to develop a framework for regular training for BDCs.