The Central Bank of Nigeria (CBN) has introduced new guidelines for interbank foreign exchange (FX) trading via its Electronic Foreign Exchange Matching System (EFEMS), effective from November 25, 2024. These changes are aimed at increasing market transparency, enhancing trading efficiency, and improving compliance within Nigeria’s FX market.
Key Provisions of the New Guidelines:
- Minimum Trade Value: The new rules mandate a minimum trade value of $100,000 for all interbank FX transactions on EFEMS. Additionally, incremental clip sizes are set at $50,000, meaning trades must occur in multiples of this amount.
- Regulated Trading Hours: Trading will be available between 9:00 AM and 4:00 PM West Africa Time (WAT) on business days. The trading system will be limited to spot FX transactions involving the Nigerian naira (NGN) and the United States dollar (USD), though the CBN has the discretion to introduce additional currency pairs in the future if necessary.
- Binding Trades: All trades executed through EFEMS are binding unless mutually canceled by both parties with written approval from the CBN.
- Credit and Settlement Limits: Participants must set credit and settlement limits for other counterparties within the system. Transactions exceeding these limits will not be executed. The same requirements apply to transactions involving the CBN as a counterparty bank.
- Compliance Requirements: Participants are required to adhere to the Nigerian Foreign Exchange Code and other relevant CBN regulations. Failure to comply with these guidelines could result in penalties, including suspension or revocation of access to the platform.
- Anonymity and Reporting: Trades on EFEMS will be conducted anonymously until matched. Counterparty details will be revealed only after transactions are completed in accordance with settlement protocols. Any transactions exceeding set limits or conducted outside the prescribed parameters must be reported promptly.
Platform Access and Participation Criteria:
Only authorized dealer banks licensed by the CBN can participate in EFEMS. Other financial institutions interested in joining must obtain prior approval from the CBN. Participants will need to enter agreements with the CBN-approved platform provider and operate within prescribed credit and settlement limits.
Monitoring and Penalties for Non-Compliance:
The CBN will closely monitor all transactions on EFEMS to ensure market integrity and transparency. Participants must submit daily reports detailing trade volumes, settlement statuses, and counterparties. Violations of the guidelines could result in strict penalties, including the suspension or revocation of platform access.
Launch of Bloomberg BMatch:
In related news, the Bloomberg BMatch system will go live on December 2, 2024, to facilitate FX trading on EFEMS. This system aims to enhance the operational efficiency of the FX market and enable the CBN to monitor market performance and manage data more effectively. Authorized dealers and banks are encouraged to liaise with Bloomberg representatives to ensure a smooth onboarding process.
These new measures are expected to strengthen the operational efficiency, transparency, and regulatory oversight of Nigeria’s FX market.
