Nigerian c-bank launches first NGN-settled OTC forex futures contracts

Nigerian c-bank launches first NGN-settled OTC forex futures contracts

Do not invest more money than you can afford to lose.


The Central Bank of Nigeria (CBN) has launched the first Naira (NGN)-settled over-the-counter (OTC) forex futures contracts on the FMDQ OTC Securities Exchange (FMDQ), according to a notice published on the exchange’s website. Trading was commenced on 27 June, 2016.

CBN’s offering includes Naira-settled OTC forex futures contracts with tenors from one month to 12 months and non-standardized amounts.

In order to ensure credibility of the forex futures contracts, the spot forex rate will be the FMDQ Spot FX Rate Benchmark – the Nigerian Inter-Bank Foreign Exchange Fixing (NIFEX), which is an independent fixing of the inter-bank forex market.

The launch of such a product is long awaited and will have a positive impact on the financial market participants as this will serves as further encouragement for the flows of capital to the nation, according to the FMDQ statement.

“[…] the Nigerian financial market is celebrating a significant milestone, as the CBN launches its first set of OTC FX Futures quotes on FMDQ OTC Securities Exchange. This innovative product will bring liquidity, transparency, price formation and diversification into the Foreign Exchange market, making the market globally competitive,”said Sarah O. Alade, FMDQ chairman and CBN deputy governor of economic policy.

Other positive impacts from the introduction of OTC forex futures trading include:

  • minimizing of the disequilibrium in the spot forex market and moderation of the rate
  • attracting significant capital flows to the Nigerian fixed income and equity markets
  • corporate treasurers making judgements on when to access the spot forex market, thus managing more effectively their liquidity positions achieving exchange rate stability
  • no need to front-load forex requirements, which put immense pressure on and distorts the spot forex rate
  • the demand for the USD by end-users can be staggered appropriately as there will be no requirement for “panic-buying” as end-users are guaranteed a fixed rate for their forex needs when required

A week earlier, Nigeria also saw the launch of first two-way quote trading. Recently, the CBN revised its guidelines for the Nigerian Inter-Bank FX Market and transitioned the market from a pegged forex rate regime to a floating one.

Source: FMDQ

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