Godwin Emefiele, the CBN governor, had said the position of the naira will be driven by market forces, but in a new document uploaded by the apex bank, it was further explained that the new regime would kick off at the the OTC foreign exchange futures contract rate of N260 to a dollar.
“The market shall operate as a single market structure through the inter-bank/autonomous window; the Exchange Rate would be purely market driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book,” Emefiele said while unveiling the new policy.
“The CBN would participate in the Market through periodic interventions to either buy or sell FX as the need arises,” he adds.
In the document, ‘how the naira-settled OTC FX futures market will work on FMDQ OTC securities exchange (FMDQ), it was explained that dealers (banks) will buy “Naira-settled OTC FX Futures are Non-Deliverable Forwards” of $1,000,000 at N270 to the dollar — N10 higher than OTC FX rate.
“It is assumed that Bank A would have transacted (bought USD in the Spot FX market) at $/₦270 which is higher than the OTC FX Futures contract rate of $/N260.
“The Clearing House, NIBSS, will pay Bank A N10,000,000 (i.e. N10 [N270-N260] per USD) thereby bringing Bank A’s effective rate to $/N260 (N270 assumed paid in buying USD less N10.00 received on the OTC FX Futures) which is the OTC FX Futures rate.
“CBN is assumed to have transacted (sold USD in the Spot FX market) at $/N270 which is higher than the OTC FX Futures contract rate of $/N260.
“The Clearing House, NIBSS, will take N10,000,000 (i.e. N10 per USD) from the Margin Account of the CBN thereby bringing CBN’s effective rate to $/N260 (N270 assumed received in selling USD less N10 paid out on the OTC FX Futures) which is the OTC FX Futures rate.
“If NIFEX had been $/N250 on maturity date, Bank A would pay CBN N10 per USD.”
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