First OTC FX Futures Contract Matures Today On FMDQ

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After a month of the kick off, the first contract, named: NGUS JUL 27 2016 USD/NGN279, totaling about USD26.73 million, matured today, July 27, 2016 and was settled on this date on FMDQ.

It would be recalled that the Naira-settled OTC FX Futures market was launched by CBN and FMDQ OTC Securities Exchange on June 27, 2016, and kicked off with CBN as the pioneer seller of the first set of OTC FX Futures contracts; offering non-standardised amounts for different tenors, from one (1) month through to twelve (12) months to Authorised Dealers, who in turn offer same to customers with trade-backed transactions or who may trade same with other Authorised Dealers.

In a statement issued by the FMDQ, market participants recognised the value in hedging their FX exposures as well as improving their business planning, as FMDQ, the OTC FX Futures Exchange, through its bespoke OTC FX Futures Trading & Reporting System, began to record trades executed between the apex Bank and Authorised Dealers.

Having been held to maturity, this one (1) month contract ceased to trade on the Wednesday (July 20, 2016) immediately preceding the maturity date of the contract (Wednesday, July 27, 2016) and was settled today by the Clearing Agent, Nigeria Inter-Bank Settlement Systems PLC (NIBSS). The matured OTC FX Futures contract was valued at 12:00 noon against the Nigerian Inter-Bank Foreign Exchange Fixing (NIFEX) rate, to determine the final Settlement Amount, ₦962.23mm, paid to the ‘Futures Banks’ – the counterparties to the CBN.

The CBN has replaced the matured July 2016 contract and has now offered the new 12M NGUS JUL 19 2017 contract, with a total notional amount on offer of $1.00bn @ ₦250 to $1.

To date, a total value of circa USD1.2 billion has been traded on the CBN’s OTC FX Futures contracts, across all tenors, with the profile of the buyers of the contracts including Foreign Portfolio Investors and importers, among others.

FMDQ said that in its capacity as the market organiser, released the OTC FX Futures Market Framework last week, and today, released the FMDQ OTC FX Futures Market Operational Standards. These will help provide the market with clarity on the OTC FX Futures product and instill the requisite standards that market participants must adhere to in order to maintain the integrity of and ensure the success of the OTC FX Futures market.

As part of its strategy to reform the FX market in general, the CBN, on July 22, 2016, released a circular which mandates the sale of foreign currency proceeds of international money transfers by banks to the Bureaux-de-Change (BDC) operators, who will in turn sell the proceeds to retail end-users. This will serve to improve the supply of FX, thus easing the scarcity of the US Dollar in the BDC market and improving the Nigerian Naira’s value to the US Dollar.

FMDQ, as the market organiser and front-line regulator for the Nigerian fixed income, currency and derivatives markets, remains resolute in its drive to steer the Nigerian financial market through innovation and value-adding initiatives, towards being globally competitive, operationally excellent, liquid, and diverse.

 

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