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Nigeria’s Liberalized Foreign Exchange Regime: Current Impacts And The Near Future


The new FX regime initially provided no official role for the Bureau-De-Change (“BDC”) Operators in the new Single Market, in line with the CBN regulation of January 2016 by which the CBN had stopped the sale of its FX to the BDCs as well as prohibited them from accessing the inter-bank market. However, in a new Circular (dated July 22, 2016 and discussed below), the CBN has recently designated a new role for the BDCs.


As noted earlier, the CBN has since the commencement of the Single Market, issued some Circulars which, invariably, are instruments of enforcing compliance with, and achieving the specific objectives of, the new FX Guidelines. These Circulars are shaping significantly the way businesses are done and the directions which investments are headed presently, and in the near future. The impacts of some of the Circulars are discussed as follows:

1. Externalization of Differentials on OTC FX Futures Contracts

The OTC FX Futures contract, as earlier indicated, operates by settling (in Naira value) the difference in the Spot FX rate at the NIFEM and the bespoke FX Futures rate at maturity. Where a party to an FX Futures contract is a foreign portfolio investor (“FPI”), thereby necessitating the need to repatriate the settled differentials in the FX rates, the concerned FPI is expected to get a clearance to this effect (to be issued by the FMDQ) known as the “OTC FX Futures Settlement Advice”.

This regulation is contained in the CBN Circular No: FMD/DIR/GEN/07/001 of June 24, 2016 titled “Externalisation of Differentials on OTC FX Futures Contracts for Foreign Portfolio Investors” and issued to all deposit money banks. Though repatriation from the country of any foreign currency purchased from the FX market by FPIs are guaranteed under Nigerian laws (see section 13 of the Forex Act and section 24 of the Nigerian Investment Promotion Commission Act (Cap. N117, LFN 2004)), the OTC FX Futures Settlement Advice is henceforth required, in addition to the requirement of Certificate of Capital Importation (“CCI”), before proceeds of the FX Futures Contracts can be repatriated by FPIs trading in the Nigerian FX market.

2. All FX Trades by Corporates to be done on the FMDQ-Advised FX Trading System

Another CBN Circular No: FMD/DIR/GEN/CIR/07/002 dated July 8, 2016 and titled “Onboarding Corporates on FMDQ-Advised FX Trading and Surveillance System” was also issued to all Authorized Dealers, directing that effective August 1, 2016; all FX-related trades by Authorized Dealers among themselves and with their Clients (i.e. Corporate Institutions), must be executed through the FMDQ-advised FX Trading, Auction & Surveillance Systems (“FMDQ-advised FX Systems”). Prior to the take-off date of the Circular, some transactions were being done outside of the FMDQ-advised FX Systems and were only voice-reported on it after, in line with the “Execution and Reporting” mandate contained in the new FX Guidelines.

In compliance with the directives contained in the Circular, all trades outside of the FMDQ-advised FX Systems have since become prohibited. Thus, by limiting all transactions in the market to just one, uniform and predictable platform for all participants, the activities in the FX market have become more streamlined, transparent and seamless.