CBN Launches Naira-settled forex futures market

Toyin Odesomi, Lagos

 

The Central bank of Nigeria has launched the Naira-settled forex futures market at the FMDQ OTC Securities Exchange.

The launch comes just a week after the launching of the new flexible currency market on the back of the recent release of the revised CBN Guidelines for the Operation of the Nigerian Inter-Bank FX Market essentially transitioning the market from a pegged forex rate regime to a floating one.

The Naira-settled OTC FX Futures product, whilst of tremendous benefit to Nigerian corporates it’s of immense importance and advantage to the CBN, the Nigerian FX market, and the nation’s economy as a whole.

In his address to the launch of the initiative, Central bank of Nigeria governor, Godwin Emefiele said the Naira-settled OTC FX Futures product will give room for reduction in volatility that would have been experienced in the Nigerian forex market.

 

The CBN Governor said that the apex bank remained steadfast to position the Nigerian foreign exchange market to be competitive, transparent, liquid and diversified adding that the product would offer Nigerians and investors the opportunity to hedge against foreign exchange rise.

“We’re very confident that with the introduction of this product into the Nigerian foreign exchange market, it will encourage new foreign investors to inflow their foreign exchange into the country believing that this is a product where everybody on all sides of the table, are comfortable that transactions and deals can be settled as and when they are planned to be settled,” he said.

He said that the launching of the first Naira-Settled OTC FX Futures contracts would be an important innovation in Nigeria’s financial markets.

 On his part, Chief executive officer of FMDQ OTC futures Exchange, Bola Onadele -Koko, says the naira settled OTC futures is expected to reduce speculations in the forex market.

Onadele- koko said ’’ this innovations provides opportunities for the governments, businesses, pension fund administrators, investors, individuals, etc, to hedge, not speculate, to cope with the exchange rate risks”.

“It’s also a powerful tool through which the  Central bank may 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,” he said.’

Naira-Settled OTC FX Futures Market will boost investment

Meanwhile some financial experts on Monday said that the first Naira-Settled OTC FX Futures Market launched by the Central Bank of Nigeria (CBN) and FMDQ OTC Securities Exchange if well implemented would enhance foreign portfolio investment in the country.

Speaking in Lagos that the Nigerian stock market and the economy would benefit from the initiative when properly handled.

President, Association of Stockbroking Houses of Nigeria (ASHON) Mr Emeka Madubuike, said that proper implementation of the initiative would boost foreign portfolio investment.

Madubuike said that the product would accord foreign investors the ability to repatriate their funds without any restriction, adding that, it would bring transparency to the foreign exchange market.

“It will be easier for people to move their funds from one place to the other with the introduction of the Naira-Settled OTC FX Futures Market,” he added.

He explained that the stock market would benefit more from the product if it was properly implemented.

Madubuike noted that the country’s productivity level would be efficient because importers would be able to continue with their production with enhanced access to forex.

He stated further that the product would enable the country to clear backlog of forex incurred in the past.

The ASHON president said that the backlog was as a result of the nation’s dependent on importation which put pressure on the foreign exchange market.

“We are still watching its implementation process but if well implemented will affect the stock market and the economy positively,” Madubuike said.

Mr Akeem Oyewale, the Chief Executive Officer, Stanbic IBTC Nominee,said the product would give certainty to investors especially the institutional portfolio investors to invest in Nigeria.

“It will allow them to get an idea of how much they can get their dollar whenever they so desired.

It allows investors to be more comfortable dealing with equities market in Nigeria.

“So if you are planning to get dividend of certain amount in the next three months and you want to fix your dollar you can go to the futures market to do it based on the offers and quote that you have in the market,” Adewale said.

Adewale said that the futures market in Nigeria would be a sustainable and stable market because of the credibility of the institutions driving the products.

The Naira-Settled OTC FX Futures Market would serve to minimise the disequilibrium in the Spot FX market and cause the rate to moderate.