CBN announces operational changes to the foreign exchange market
By Zion Rufus
In a significant development that aims to streamline and enhance the efficiency of the Nigerian Foreign Exchange (FX) Market, the Central Bank of Nigeria (CBN) has announced several operational changes.
These changes, disclosed in a circular signed by Angela Sere-Ejembi, PhD, the Director of Financial Markets, include the abolishment of segmentation, reintroduction of the “Willing Buyer, Willing Seller” model, and the implementation of order-based two-way quotes, among other modifications.
One of the key changes announced by the CBN is the collapse of all segments into the Investors and Exporters (I&E) window. This means that applications for medicals, school fees, BTA/PTA, and SMEs will now be processed through deposit money banks, effectively eliminating the need for multiple segments within the FX market.
Furthermore, the CBN has reintroduced the “Willing Buyer, Willing Seller” model at the I&E window. Under this model, all eligible transactions will have access to foreign exchange at the window, adhering to the guidelines specified in the circular dated 21 April 2017.
To determine the operational rate for government-related transactions, the CBN has stipulated that it shall be based on the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two decimal places. This measure aims to ensure consistency and transparency in determining exchange rates for government transactions.
In a move to manage FX positions effectively, the CBN has proscribed trading limits on oversold positions and granted permission to hedge short positions with Over-the-Counter (OTC) futures. However, limits on overbought positions have been set to zero, indicating stricter regulations to prevent excessive speculation in the market.
The reintroduction of order-based two-way quotes with a bid-ask spread of N1 will facilitate a fair and transparent trading environment. Additionally, all transactions will now be cleared by a Central Counter Party (CCP), enhancing accountability and security.
To further enhance transparency and execution of trades, the CBN has reintroduced the Order Book. This will provide market participants with visibility into orders and facilitate seamless trade execution.
The operational hours of trades have been set from 9 am to 4 pm, Nigeria time. This adjustment aims to align with the trading hours of major international FX markets, ensuring greater synchrony and accessibility for market participants.
In its circular, the CBN also announced the cessation of the RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, effective from 30 June 2023. These schemes, which were introduced to incentivize remittances, will no longer be in operation after the specified date.
The CBN has assured that further guidance on these operational changes will be communicated in due course. It has called upon all market participants and the general public to adhere to the new rules and regulations to ensure a smooth transition and foster a more robust and efficient foreign exchange market.
RECOMMENDED ARTICLES
Comment
No comments found.