Home Business CBN, Citibank executes 1st Naira-Settled OTC futures

CBN, Citibank executes 1st Naira-Settled OTC futures

by Business News Report

The new foreign exchange policy yesterday received a $20 million foreign investment boost as the Central Bank of Nigeria, CBN,  and Citibank Nigeria Limited  executed the first Naira- Settled Over the Counter (OTC) Foreign Exchange Futures.

Meanwhile the CBN yesterday assured bureaux de change (BDC) operators that it is working out the modalities for resumption of dollar sales to the subsector.

Announcing the Naira-Settled OTC transaction on its website yesterday, the Financial Market Dealers Quote (FMDQ)  said, “First Naira-Settled OTC FX Futures Trades Executed between CBN and Citibank Nig. Ltd. on FMDQ”.

Speaking on condition of anonymity, a source with knowledge of the transaction told Vanguard that the value of the transaction was $20 million. Vanguard investigations reveal that the $20 million was a foreign investment inflow into the country.

“What the bank did was to leverage on the opportunity provided by the Naira-Settled OTC Futures to facilitate inflow of $20 million into the country. It is boost for dollar supply into the market”, the source said.

The Naira Settled OTC Futures is one of the critical features of the flexible exchange rate regime announced by the CBN on Tuesday June 14th, 2016.

It basically means future purchase of foreign exchange at an agreed exchange rate, with any difference between agreed exchange rate and the prevailing exchange rate on the agreed date, settled in naira. It was designed as a means of managing foreign exchange risks and reduces demand pressure for immediate purchase of foreign exchange.

Among other things, the Naira Settled OTC Futures:   Provides protection against exchange rate fluctuation in investment portfolio;

It allows the holder to fix prices for import and export purposes;

It allows an investor to take a view as to whether the exchange rate will strengthen or weaken and take advantage of price movements that suit their position.

“It is a good way of encouraging foreign investment into the country”, said a senior banker, who spoke on condition of anonymity. “With the Naira-Settled OTC Futures, foreign investors can bring in money and use the Naira-Settled OTC futures to guarantee the exchange rate at which they will exit the country. It will help to stabilise the system, if it is well managed and implemented”, he said.


Modalities for dollar sales to BDCs coming-CBN

Meanwhile, the CBN yesterday said that it is working on modalities to accommodate bureaux de change (BDCs) and other stakeholders in the new foreign exchange regime.

Deputy Director, Financial Policy and Regulation Department, Mr. Anthony Ikem disclosed this while speaking at an interactive session between CBN and BDCs organised by Association of Bureaux De Change Operators (ABCON) in Lagos.
Ikem said the management of the CBN was working on how the BDCs could be accommodated and carried along 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. The director noted that there was need for the BDCs to corporate and partner with the CBN to see how they would be accommodated in the new policy.”

On his part, ABCON President, Alhaji Aminu Gwadabe called on the CBN to make Retail foreign Exchange transactions the exclusive preserve of BDCs. He said:  “We believe that the CBN and ABCON have a common goal which is stability of the foreign exchange market and the exchange rates. The challenge however that is while ABCON has been increasingly willing to collaborate and support efforts of the CBN in this regard, the attitude and response from the CBN in recent times is not too encouraging.

Hence, we urge the CBN to be more sensitive to the BDC industry and considerate in its policy formulation to allow the industry play its role.

“We urge the CBN to grant Approval-in-Principle or Certificate of No Objection to the ABCON ROADMAP. We also want the CBN to create a special intervention window for the BDCs in the interbank market.

We urge the CBN to allow ABCON participate in formulation of polices for the forex market and especially on matters relating to BDCs. We appeal to the CBN to restore and enforce the Self Regulatory status of ABCON, by making membership of the Association criteria for licensing and renewal of licensing of BDCs”.

 Naira gains 26k in interbank

The naira yesterday halted two days depreciation, appreciating against the dollar by 26 kobo in the interbank market. Data by the Financial Market Dealers Quote (FMDQ) reveal that the interbank exchange rate dropped slightly to N281.23 per dollar yesterday for spot transactions from N281.49 per dollar on Tuesday. The naira however remained stable in the parallel market where the exchange rate remained between N353 and N355 per dollar.


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