Naira Depreciates after CBN Releases Update on FX Trading Rules
The naira depreciated against the US dollar in the foreign exchange market ahead of the implementation of Bloomberg BMatch as the designated platform to support the Electronic Foreign Exchange Matching System (EFEMS) for interbank trading.
The Central Bank of Nigeria (CBN) has approved the use of BMatch platform for banks to execute interbank FX trading transactions starting from Dec 2, 2024. Analysts said they expect the platform to increase transparency in the forex market demand and supply and help in price discovery.
According to spot FX data from the FMDQ platform, the naira depreciated by 0.08%, closing at N1,660.83 per US dollar in the official market. The local currency depreciated as forex market liquidity shortage persisted amidst growing demand concerns. The naira also lost against the greenback in the informal currency market due to related pressures on FX liquidity.
The market reacted positively to the CBN’s move to channel FX trading activities via the use of Bloomberg BMatch system for interbank FX transactions.
MarketForces Africa noted that the CBN has released guideline to banks to regulate the operations of interbank FX trading via the Electronic Foreign Exchange Matching System (EFEMS).
“The purpose is to ensure transparent, fair, and efficient FX trading, minimizing counterparty risk, and ensuring compliance with Central Bank of Nigeria (CBN) regulations,” the apex bank said.
FX trading sessions are expected to open to authorised dealer banks from 09:00 hrs to 16:00 hrs West African Time on business days. The CBN said all unmatched orders will be cleared at the market’s close and may be resubmitted on the following business day.
Quotes on EFEMS will remain anonymous until matched. Once matched, counterparty details will be revealed for settlement purposes. The CBN requires all trades consummated on EFEMS are binding, unless canceled by mutual agreement of both parties with written approval from the CBN.
The Apex Bank sets a minimum tradable amount at US$100,000 with incremental clip sizes of US$50,000. The CBN requires all participants to set credit and settlement limits for other counterparties in the system. Details from the guideline revealed that transactions exceeding these limits will not be executed.
Banks and other participants are expected to have adequate credit and settlement limits; set for the CBN as its counterparty bank. The automated FX trading platform is expected to be used exclusively for executing spot FX transactions involving the Nigerian Naira (NGN) against the United States Dollar (USD).
The directive hints that other currency pairs may be introduced upon the CBN’s directive. The CBN demands that transactions on EFEMS must be settled through approved settlement systems, with participants bearing responsibility for their obligations.
“Any participant defaulting on settlement obligations will face penalties as determined by the CBN”, the authority stated Banks and other authorised dealer banks are required to submit daily transaction reports only to the CBN, detailing trade volumes, counterparties, and settlement status.
To improve market governance, the CBN said all whole/interbank trades conducted between authorised dealers and non-banks participants on telephone must be confirmed on the request for quotation (RFQ) and reported on EFEMS immediately. #Naira Depreciates after CBN Releases Update on FX Trading Rules Naira Plummets to N1690/$ after CBN Priced Spot Rate High
