CBN, FMDQ introduce long-dated FX futures

Central Bank of Nigeria


he Central Bank of Nigeria (CBN) in collaboration with FMDQ Holdings Plc (FMDQ) has introduced long-dated FX Futures, extending the maximum contract tenor to up to five years.



This implies that 47 new monthly OTC FX Futures contracts, in addition to the existing 13 contracts have been introduced from February 13, 2020, bringing the total number of open OTC FX Futures contracts at any point to 60.



FMDQ in a statement made available to newsmen noted that as the pioneer and sole seller of the naira-settled OTC FX Futures contracts, the CBN, having successfully sold a total value of circa $34.83 billion so far on FMDQ Securities Exchange Limited, made history with the landmark achievement following the launch of the product in June 27, 2016, to the relief of Nigerian corporates, foreign portfolio investors (FPIs), foreign direct investors (FDIs) and other investors, as the product served to minimise the disequilibrium in the Spot FX market.



It also caused the exchange rate to moderate; attracting significant capital flows to the Nigerian fixed income and equity markets; and achieving exchange rate stability.


“With this product administered via the bespoke FMDQ FX Futures Trading & Reporting System, it is noteworthy that since the introduction of the product almost four  years ago, there has been no settlement default, with FX Futures contracts over the last 43 maturities, totalling circa $25.53 billion, successfully cleared and settled by FMDQ’s wholly owned clearing house, FMDQ Clear Limited.
“In the global financial system, hedging products are market enablers, allowing businesses and investors around the world to invest freely across borders, effectively hedge their risks and invariably contributing to economic growth. With the FX Futures contracts, the effective rate at which a counterparty will purchase (or sell) FX at any given time in the future is predetermined and fixed; essentially obligating the parties to the transaction which is consummated on FMDQ Exchange, to purchase or sell a currency (in this case, US Dollar) on a predetermined future date (the settlement date) for a fixed rate agreed on the date a contract is entered (trade date).



“No obligation exists for the physical delivery of the currency and at maturity, clearing and net settlement which is effected by FMDQ Clear, is made in Naira based on the US Dollar notional amount, and determined by the difference between the agreed rate (on trade date) and the rate on maturity (on settlement date) as determined by FMDQ’s FX reference rate – the Nigerian Autonomous Foreign Exchange Fixing – NAFEX. Under the erstwhile OTC FX Futures market structure, the CBN offered 13 monthly contracts allowing market participants hedge FX exposures for up to a 1-year period.

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