Over-The-Counter (OTC) market, last month, recorded a turnover ₦9.75 trillion. This figure, according to FMDQ OTC Securities report was 23.49 per cent (₦2.99trn) lower than the value recorded in the month July. 2016.
A breakdown of activities in OTC last month showed that Treasury Bills (T.bills) transactions accounting for 33.02 per cent of the total value while turnover in the Foreign Exchange (FX) market, accounting for 23.29 per cent of total turnover, settled at $7.12 billion.
In the month of August, liquidity in the banking system was low as open-buy-back and overnight rates closed the month at 16.00 per cent and 17.67 per cent respectively, with the turnover in the Money market settling at ₦3.97trn.
The 2nd OTC FX Futures contract, ‘NGUS AUG 24 2016’, with notional amount $152.48mm at $/N 310, matured and settled on FMDQ in platform last month.
In line with the OTC FX Futures Market framework and the FMDQ OTC FX Futures market operational standards, trading on the NGUS AUG 24 2016 contract ceased on Tuesday, August 16, 2016, and was valued by FMDQ OTC Securities Exchange (FMDQ) against the Nigerian Inter-Bank Foreign Exchange Fixing (NIFEX) Spot rate.
Clearing operations and settlement for the final amounts, were effected through the Nigeria Inter-Bank Settlement System PLC (NIBSS), in its capacity as the FMDQ-designated Clearing Agent for the margining and settlement of the OTC FX Futures contract.
The August 24, 2016 matured contract was replaced by the Central Bank of Nigeria (CBN) with a new 12-month contract, NGUS AUG 16 2017, with a notional amount on offer of $1.00bn at $/₦241.
In addition, the CBN refreshed its quotes and published new rates on the existing 1-month to 11-month contracts as shown on the FMDQ websit.
Over $2.40 billion worth of the OTC FX futures contracts offered by the CBN, across all the tenors, with the profile of the contract buyers including authorised dealers, foreign portfolio investors and importers, among others, have been traded.
The significant increase in turnover clearly showed the receptiveness of the transaction counterparties and end-users to the product
The Naira-settled OTC FX Futures product has continued to pave the way for corporates to enhance business planning whilst effectively hedging their FX risk, even as the CBN continues to position and empower stakeholders towards a vibrant FX marke.
The Chief Executive Officer of FMDQ, Bola Onadele, at the launch of the product, in collaboration with the Central Bank of Nigeria (CBN) held in Lagos, assured stakeholders that there is no longer the need to front-load FX requirements, which puts immense pressure on and distorts the Spot FX rate.
According to him, with the kick off of the Naira-settled OTC FX Futures market, and the CBN selling OTC FX Futures contracts of non-standardised amounts for different tenors from one month through to 12 months which will settle on bespoke maturity dates, providing liquidity in the product that will enable corporate treasurers effectively and efficiently manage their FX risk, the market has been positioned for a successful operation.
To ensure credibility of the contracts, especially at maturity, onadele explained that the Spot FX rate would be the FMDQ Spot FX Rate Benchmark.
“Futures product is a major milestone development in the evolution of the Nigerian financial markets. The Futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals etc. to hedge (not speculate) to cope with exchange rate risk.
“ It also affords the CBN a greater opportunity to 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 added.
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