CBN begin talks with financial market dealers on FX modalities

AUTHORITIES at the Central Bank of Nigeria (CBN) are beginning talks with Financial Market Dealers and treasurers of Deposit Money Banks in order to work out modalities for the operation of the new flexible Foreign Exchange guidelines ahead of full take-off of the policy on today.

The talks will begin today in Lagos with the dealers, who according to the policy guidelines, will now be critical players in the new FX regime and “that explains why that meeting is crucial,”

The CBN will try to extract commitment from the dealers that they will cooperate with it for the success of the flexible FX regime, which is entirely new to Africa’s largest economy.

To improve the dynamics of the new market structure, the apex bank says it will introduce 8-10 FX Primary Dealers (FXPD) which will be registered to deal directly with the Bank for large trade sizes on a two-way quotes basis. The CBN will notify the selected Primary dealers today.

The Primary Dealers will operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines, which would also be released immediately after this press briefing.

Another key measure contained in the new FX regime is the establishment of the futures market for foreign exchange, which would allow businesses to hedge against future unpleasant movements in the exchange rates by locking into the current rate thereby guaranteeing the availability of funds when needed in the future.

The CBN hopes to introduce non-deliverable over-the-counter (OTC) naira-settled futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System.

“This is an entirely new product 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,” the source stated, justifying the scheduled meeting.

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The CBN is strengthening its market monitoring processes to ensure that speculators do not exploit the new structure.

The source explained that the CBN had given assurances to President Buhari that it would enhance transparency in the new structure, unlike in the past and that this was a major convincing point for him to assent to the new FX policy.

The bank treasures and market dealers are therefore also expected to be told how critical it is for them to abide by rules in this new era, because according to the source, the CBN is not going to take infractions lightly.

The new guidelines stipulate that Dealers who fail to comply with the provisions of the Guidelines, will be sanctioned, including suspension of the FX Primary Dealers (FXPD) Authorised Representatives of the Authorised Dealer, suspension of Authorised Dealer from the FX market and/or withdrawal of the Authorised Dealership Licence.

CBN governor, Godwin Emefiele had said while announcing the new rules that the “Central Bank is strongly determined to make this market as transparent, liquid, and efficient as possible.

“Therefore, we would neither tolerate unscrupulous behaviour nor hesitate to bring serious sanctions on offenders. The CBN expects all authorised dealers particularly to display the highest level of professionalism. We expect them to understand the spirit and letter of this transition to a market based system.