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CBN Resumes Quotation of Naira-settled OTC FX Futures Contracts

The Central Bank of Nigeria (CBN) resumes offering quotes for Naira-Settled OTC FX Futures (NSOFF) contracts with durations of thirteen (13) to sixty (60) months.

The aim is to facilitate long-term FX risk hedging for market participants, allowing them to manage exposure to currency fluctuations.

NSOFF contracts are financial instruments that help market participants hedge against foreign exchange risks by exchanging currency at a predetermined price at contract maturity.

The Central Bank of Nigeria (CBN) announced that effective Monday that it will resume providing offer quotes for Naira-Settled OTC FX Futures (NSOFF) contracts with tenors ranging from thirteen (13) to sixty (60) months.

The move is aimed at facilitating long-term foreign exchange (FX) risk hedging for market participants.

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.

Effective July 3, 2023, the CBN will quote offers for NSOFF contracts with tenors between thirteen (13) and sixty (60) months for a period of one year, until June 28, 2024.

However, offer quotes for contract tenors between thirteen (13) and twenty-four (24) months will be discontinued, with the CBN focusing solely on the twenty-five (25) to sixty (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 (1) to twelve (12) months, with the specific date to be communicated by the Exchange.

As of July 3, 2023, NSOFF contracts with terms to maturity of thirteen (13) to sixty (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 to maturity of one (1) to twelve (12) months will continue to be marked-to-market using the NAFEX rate as the reference.

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.

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

 

 

 

 

About Bukola Olanrewaju

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