The Central Bank of Nigeria (CBN) has directed that all foreign exchange trades (FX) by Authorized Dealers (Banks) and Companies in the Nigerian FX market must be executed through the platform provided by the Financial Market Dealers Quotes (FMDQ)-advised FX trading, with effect from August 1, 2016.
The apex bank, in a recent circular signed by the Director, Trade and Exchange Department, Dr. Alvan E. Ikoku, ordered all authorised dealers and corporate institutions operating in the Nigerian FX market to execute all FX trades among themselves and with their clients (i.e. corporate institutions) through the FMDQ-advised FX systems.
“The deployment of the FMDQ-advised FX systems will only be to those Corporates that have been screened and pre-approved by FMDQ in line with its on-boarding eligibility criteria,” the circular read in part” the circular stated.
Meanwhile, authorised dealers and corporate institutions operating in the Nigerian FX market include: Authorised buyers; Oil companies; Oil service companies; exporters; end-users and any other entity the apex bank may designate from time to time.
But with this onboarding regime, analysts are divided on its implication to the Bureau De Change (BDC) segment of the FX mark. While a horde of analysts believe that since CBN has been holding talks with BDC operators to fashion out modalities for their inclusion, this move could give the apex bank some positive direction on how to ‘onboard’ the BDCs.
Others are of the opinion that forcing companies in the Nigerian FX market to execute all trades through the platform will make things more difficult for BDCs because some of the Corporates especially oil companies sometimes secretly sell FX to BDCs(autonomous sources). Therefore, this directive has put a stop to that window.
To improve the dynamics of the market, CBN introduced FX Primary Dealers (FXPD) who are registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis. These Primary Dealers operates with other dealers in the Inter-bank market.
It would be recalled that earlier guidelines for the floating FX regime had stipulated that all FX transactions by Authorised Dealers are to be reported to FMDQ via the FMDQ-advised FX Reporting System, which the CBN will have access to.