CBN Governor
CBN Governor

Central Bank of Nigeria, CBN, at the weekend issued the operational requirements to guide the externalisation of the differentials on OTC FX FUTURES Contracts for Foreign Portfolio Investors, FPIs.
A circular obtained from the apex bank’s website stated that the move was to facilitate the operational efficiency of the emerging OTC FX Futures Market organised by FMDQ OTC Securities Exchange, FMDQ, in line with the powers vested on it by the foreign Exchange Monitoring and Miscellaneous Provisions Act 17 of 1985 and the BOFI Act of 1991.
The circular with number FMD/DIR/GEN/07/001 was addressed to all deposit money banks in the country. Signed by S. A. Olih on behalf of the financial market department of the CBN, the statement explained that all participating FPIs in the OTC FX Futures Market are required to present an OTC FX Settlement Advice, to be issued by FMDQ along with the requisite certificate of capital importation CCI to facilitate the externalisation of the settlement amount the differential between the OTC FX futures and Nigerian Inter-Bank Foreign Exchange NIFEX fixing on the settlement date of OTC FX Futures Contracts.
According to him, “for the avoidance of doubt, requests for repatriation of settlement amount of OTC FX Futures Contracts by FPIs that are not accompanied with the requisite Settlement Advice from FNDQ and the CCI should not be processed by any deposit money bank in Nigeria.”
It would be recalled that the CBN introduced a flexible exchange rate system announced by the governor, Godwin Emefiele on 15 June 2016. During the maiden press briefing on the new policy, Emefiele said CBN shall introduce non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System.
He added that product is new and unique in the Nigerian Foreign Exchange Market, which would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market. Part of features of the product include; the OTC FX Futures shall be in non-standardized amounts and different fixed tenors, which may be sold on any dates thereby ensuring bespoke maturity dates; proceeds of Foreign Investment Inflows and International Money Transfers shall be purchased by Authorized Dealers at the Daily Inter-Bank Rate; and Non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the Inter-bank market.
“The CBN will not allow the system to be undermined by speculators and rent-seekers. Permit me to emphasize that any attempt to breach any aspect of this new framework will be heavily sanctioned by the CBN and this may indeed result in the suspension or withdrawal of the FX dealing license of an offending Authorized deale” Emefiele emphasised.
The Exchange Rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.