CBN to Resume Quotation of Naira-settled OTC FX Futures Contracts Today

Kayode Tokede

The FMDQ Exchange Market has announced that the Central Bank of Nigeria (CBN) will effective from today resume providing offer quotes for Naira-settled OTC FX Futures (NSOFF) contracts with tenors ranging from 13 to 60 months.

The Exchange in a notice to market participants stated that the aim is to facilitate long-term foreign exchange (FX) risk hedging.

Naira-settled OTC FX Futures (NSOFF) contracts are financial instruments offered in the Nigerian financial market.

These contracts allow market participants to hedge against foreign exchange (FX) 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.

According to the notice, “effective July 3, 2023, the CBN will quote offers for NSOFF contracts with tenors between 13 and 60 months for a period of one year, until June 28, 2024. However, offer quotes for contract tenors between 13 and 24 months will be discontinued, with the CBN focusing solely on the 25 to 60 months NSOFF contracts during this period.

“To meet short-term hedging requirements, market participants can turn to the FMDQ Naira-Settled Exchange-Traded FX Futures (NSEFF) contracts, set 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. As of July 3, 2023, NSOFF contracts with terms to 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.”

It added that NSOFF contracts with terms to maturity of one to 12 months will continue to be marked-to-market using the NAFEX rate as the reference.

FMDQ added that 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 FX 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 centralized exchange but rather directly between parties, “it said.

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