The new fully Floated FX Market – In a Nutshell

Forex
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Thursday, June 16, 2016 5.16AM / ARM 

Yesterday, the CBN governor announced the much awaited changes to the FX market which will see a change in currency regime from a managed floating to flexible exchange rate market architecture.  

The following are the major highlights of the recent communication from the apex bank:

1.       The interbank market shall be the only the FX market.

2.      The currency shall be market driven

3.      The CBN to intervene as need arises

4.      To introduce primary FX dealers to deal with large transactions

5.      There will be no predetermined spread on FX transactions.

6.      The 41 items previously banned from Nigerian foreign exchange market shall remain proscribed.

7.      Introduction of long tenured FX forwards

8.     Sales of FX forwards must be trade backed with no pre-determined spreads

9.      To introduce naira NDF’s

10.   OTC FX futures will be introduced. The OTC FX futures will be bespoke and volumes could be non-standard.

11.   FPI to be settled at daily interbank rate

12.  Non-oil exporters are now allowed unfettered access to export proceeds via the  interbank market  

Timelines

·         Guidelines on the general FX market and FX primary dealers - Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market 

·         FX primary dealers will be appointed and notified by Friday, June 17, 2016

·         Interbank FX trading under the new guidelines will begin on Monday, June 20, 2016  

·         Details about the FX futures mark to be announced on Monday, June 27 2016. 

On matured LCs, the CBN governor stated the pending transactions will be settled at the interbank market. Importantly, the governor noted that current FX reserves of $26.5 billion are sufficient to meet pending obligations.

Related News

1.       Implications for Markets as the CBN finally floats the Naira

2.      The Nigerian Managed Float Exchange Rate System

3.      CBN Releases Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market

 

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