The naira-settled foreign exchange futures market on the FMDQ Over-the-Counter Securities Exchange will boost liquidity, transparency, price formation and diversification in the foreign exchange market, making the market globally competitive, the Deputy Governor, Economic Policy, Central Bank of Nigeria and Chairman, FMDQ, Dr. Sarah Alade, has said.
With this development, the CBN has become the pioneer seller of the naira-settled OTC FX futures contracts on the FMDQ platform.
This is coming one week after two-way quote trading commenced in the Nigerian forex market on the back of the recent release of the revised CBN guidelines for the operation of the Nigerian inter-bank forex market, essentially transitioning the market from a pegged forex rate regime to a floating one.
Alade said, “This innovative product will bring liquidity, transparency, price formation and diversification into the forex market, making the market globally competitive. FMDQ, the market organiser and the ‘OTC FX Futures Exchange,’ in collaboration with the CBN and other stakeholders, is adequately equipped to deliver the needed transformation in the Nigerian financial market.”
The FMDQ, in a statement, said, “This achievement in the Nigerian financial markets has indeed been a long time coming, spanning 30 years, when the inter-bank forex market in Nigeria commenced and the Exchange Rate Liberalisation Policy was introduced in 1986, to the introduction of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995.”
The naira-settled OTC FX futures market started with the CBN selling the OTC FX futures contracts of non-standardised amounts for different tenors from one month through to 12 months, which will settle on bespoke maturity dates, providing liquidity in the product that will enable corporate treasurers effectively and efficiently manage their forex risk.
The Governor, CBN, Godwin Emefiele, said, “The CBN remains steadfast in its purpose to position the Nigerian forex market to be competitive, transparent, liquid and diversified, thereby ensuring requisite fundamentals that make for a thriving economy.”
FMDQ said, “To ensure credibility of the contracts, especially at maturity, the spot FX rate will be the FMDQ spot FX rate benchmark – the Nigerian Inter-Bank Foreign Exchange Fixing, an independent fixing of the inter-bank FX market.
“The naira-settled OTC FX futures product, while of tremendous benefit to Nigerian corporates, is equally of immense importance and advantage to, among others, the CBN, the Nigerian forex market, and the nation’s economy as a whole.
“The OTC FX futures market will serve to, inter alia, minimise the disequilibrium in the Spot FX Market and cause the rate to moderate; attract significant capital flows to the Nigerian fixed income and equity markets; and achieve exchange rate stability.”