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CBN Unveils Naira-Settled Forex Future Market

-Emefiele Assures On Liquidity, Transparency As Naira Hits

Sam Diala

Twelve days after it announced guidelines for the newly introduced flexible exchange rate, the Central Bank of Nigeria (CBN), Monday, unveiled the much anticipated Naira-Settled OTC Forex Future Market in Lagos.

The event which attracted stakeholders, including industry experts and regulators, was held at the head office of the Financial Market Daily Quote (FMDQ) Securities Exchange in Lagos.

The CBN had held the Naira-Settled OTC Forex Spot trading also at FMDQ  the previous Monday.

The Naira-Settled OTC (Over-The-Counter) Future Market refers to foreign exchange deals between banks and their customers engaged at the time of the trading to meet future forex need.

On the other hand, Spot forex trading refers to transactions for immediate forex requirements or to settle outstanding commitment.

The Spot forex trading was held June 20, to settle backlog of approved foreign exchange transactions ‘trapped’ in the transition from controlled to floated forex regime.

The CBN had on May 24, announced the introduction of the flexible foreign exchange (forex) policy aimed at having the exchange rate of the Naira determined by market forces as against the controlled system that had been in place over the years.

The President Muhammadu Buhari-led government and the CBN had vehemently opposed to allowing the Naira to float – a euphemism for depreciation (or indirect devaluation), which they argued would lead to inflation and compound the effects of the economic downturn on the masses.

However, experts warned against maintaining CBN-determined exchange rate that resulted in huge depletion of the foreign exchange reserves in the apex bank’s  bid to defend the local currency.

In his remarks, the CBN Governor, Godwin Emefiele, expressed delight at the successful launch of the floating foreign exchange regime, which he said would go a long way in resolving the inefficiencies that attended the previous system.

He said that the new regime would guarantee liquidity, transparency and convenience in the market and assured buyers of continued supply of forex to meet their needs.

Emefiele also expressed confident that the new forex policy would boost investors’ confidence and attract regular inflow of forex to the economy.

He said, “We are very confident that the introduction of this product into the Nigerian foreign exchange market will encourage foreign investors and inflow of their foreign exchange into the country.

“It also affords Nigerian importers who may need to import a product but would need to consider at what price those products are coming in the future.”

Explaining the modalities of the Naira-Settled OTC Forex Future trading, Emefiele said importers and their banks would strike a deal on a future foreign exchange transaction.

“Example, you want to import foreign exchange in the next three, six or nine months, all you need to do is to fix your price and once that price is agreed, between you and the bank, your foreign exchange will be procured at that price.

“But you take a bet, believing that if, for instance, the exchange rate that comes at spot is above the exchange rate agreed in the last three months, CBN will pay you the difference in Naira equivalent and you will go and procure your foreign exchange at the price you have planned to buy the foreign exchange,” Emefiele explained.

This implies that the customer would be required to pay the bank the difference in Naira if the agreed exchange rate is less.

According to Emefiele, “This is the entire concept; it is meant to give you comfort and make it easy for you to plan your business, and you bother yourself less about whether or not to procure foreign exchange and at what price you truly procure that foreign exchange.”

Emefiele expressed confident that the system would reduce the volatility that had characterized the market and also help to engender more forex flows into the Nigerian foreign market for the good of all.

Sarah Aladeh, CBN Deputy Governor (Economic Policy) and Chairperson FMDQ, described the event as a milestone in FMDQ’s effort at deepening the market in collaboration with CBN.

Aigboje Aig-Imoukhuede, immediate past FMDQ chairman; and FMDQ Managing Director/CEO, Bola Onadele Koko, recounted the efforts of the defunct Money Market Association in bringing the FMDQ Securities Exchange platform into reality.

Emmanuel Ukeje, Senior Special Assistant to the CBN Governor represented Emefiele at the event.

The Naira closed N284 and N351 to the Dollar in the interbank and parallel markets respectively yesterday.

The local currency has depreciated by over 40 per cent since Monday June 20 when the flexible exchange regime took effect.

The Naira-Settled OTC Forex Future trading launch was monitored in Lagos

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