CBN to resume naira-settled OTC FX contracts tomorrow

From tomorrow, July 3, 2023, the Central Bank of Nigeria (CBN) will begin quote offers for naira-settled OTC FX Futures (NSOFF) contracts with tenors between 13 and 60 months until June 28, 2024.

The apex bank added that offer quotes for contract tenors between 13 and 24 months will be discontinued as the CBN focuses solely on the 25 to 60 months NSOFF contracts during this period.

To meet short-term hedging requirements, market participants can now turn to the FMDQ naira-settled Exchange-Traded FX Futures (NSEFF) contracts, to be introduced by FMDQ Securities Exchange Limited in the FMDQ Exchange-Traded Derivatives (ETD) Market on July 12, 2023.

Additionally, Futures Banks will soon provide quotes for NSOFF contracts with tenors ranging from one to 12 months, with the specific date to be communicated by the Exchange.

From July 3, 2023, NSOFF contracts with terms of maturity of 13 to 60 months will be valued based on the executable offer quotes provided by the CBN and Futures Banks on the relevant valuation dates.

NSOFF contracts with terms of maturity of one to 12 months will continue to be marked-to-market using the NAFEX rate as the reference. The bank said that the move is aimed at facilitating long-term foreign exchange risk hedging for market participants.

Naira-settled OTC FX Futures (NSOFF) contracts are financial instruments offered in the Nigerian financial market. They allow market participants to hedge against foreign exchange risks associated with fluctuations in the value of the Nigerian naira against other currencies.

The NSOFF market provides participants such as banks, corporations and institutional investors with a mechanism to manage their exposure to currency fluctuations.

By entering into these contracts, they can mitigate the potential adverse effects of exchange rate movements on their business operations, investments or financial positions.

The recent announcement regarding the resumption of quotation of offer quotes for NSOFF contracts signifies changes in the availability of these contracts based on their duration, aiming to provide market participants with more options for managing their forex risk exposures.

The NSOFF contracts are settled in naira, the local currency, and are traded Over-The-Counter (OTC), meaning they are not traded on a centralised exchange, but rather directly between parties.

These contracts have specific durations, typically ranging from 13 to 60 months, during which the parties agree to exchange a specified amount of currency at a predetermined price at the contract’s maturity.