•To appoint primary, secondary dealers
At a world press conference in Abuja, Emefiele said the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book, while the market shall operate as a single market structure through the inter-bank/autonomous window.
Details of the flexible foreign exchange market and guidelines for the selection and operations of FX primary dealers were to be released yesterday while selected primary dealers would be notified by Friday.
“All other non-primary dealers would remain valid and eligible to participate in the market; inter-bank trading under the new guidelines will begin on Monday 20th June 2016; and the tenors and rates for the OTC Naira-settled FX Futures will be announced on Monday 27th June 2016”, Emefiele disclosed.
He contrasted the 2005 situation when oil prices sold for about US$50 per barrel for an extended period of time and average import bill was N148.3 billion per month to average import bill for 2015, which stood at N917.6 billion per month.
Emefiele noted that the interplay between reduced foreign exchange supply and rising demand accounted for a substantial reduction in the country’s foreign exchange reserves.
He also noted that the CBN had taken several steps to avoid further depletion of the reserves with several interventions and policies.
The new regime will also see CBN participating in the market through periodic interventions to either buy or sell FX as the need arises; introduce FX Primary Dealers (FXPD) who would be registered by the CBN to deal directly with the bank for large trade sizes on a two-way quotes basis.
“These primary dealers shall 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”, he stated.
Also, there shall be no predetermined spread on FX spot transactions executed through the CBN intervention with primary dealers, while all FX spot purchased by authorized dealers are transferable in the inter-bank FX market.
Emefiele clarified that the 41 items classified as “Not Valid for Foreign Exchange” as detailed in a previous CBN Circular shall remain inadmissible in the Nigerian FX market.
To enhance liquidity in the market, the CBN may also offer long-tenored FX forwards of 6 to 12 months or any tenor to Authorized Dealers; and sale of FX forwards by authorized dealers to end-users must be trade-backed, with no predetermined spreads;
In addition, CBN shall 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 governor said.
The OTC FX futures shall be in non-standardized amounts and different fixed tenors, which may be sold on any dates thereby ensuring bespoke maturity dates; proceeds of Foreign Investment Inflows and international money transfers shall be purchased by authorized dealers at the daily inter-bank rate; and non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the inter-bank market.
Stressing determination of the CBN to make the market as transparent, liquid, and efficient as possible, Emefiele warned “we would neither tolerate unscrupulous behaviour nor hesitate to bring serious sanctions on offenders.
Source:Tribune
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