OTC FX Futures Market Paves Way for FPIs Posted on: July 14, 2016

The OTC FX Futures Market …Paving the Way for Foreign Portfolio Investments while Stanbic IBTC Bank PLC Seals $60mm OTC FX Futures Deal on FMDQ. The Nigerian FX Market is on the path to renewed stability, as the introduction and recent launch of the Naira-settled OTC FX Futures Market on FMDQ OTC Securities Exchange (FMDQ) has begun to generate interest from Foreign Portfolio Investors (FPIs).

Coming on the heels of trades worth $20million (Twenty Million Dollars) executed on the FMDQ Futures Trading and Reporting System, between the Central Bank of Nigeria (CBN), the pioneer seller of the OTC FX Futures Contracts, and Citibank Nigeria Limited, amongst other trades, Stanbic IBTC Bank PLC has most recently joined the league of players to derive from, on behalf of FPIs, the benefits inherent in participating in the OTC FX Futures market. The trades, executed on behalf of Foreign Portfolio Investors, totaling about $60million (Sixty Million Dollars), were for the 10-month contract – NGUS APR 26 2017 at $/N 210.

With underlying benefits which include, but are not limited to, achieving exchange rate stability; attracting significant capital flows to the Nigerian fixed income and equity markets; and minimising the disequilibrium in the Spot FX market, this innovative and well-positioned Naira-settled OTC FX Futures product has garnered increased interest, particularly from the global financial market participants, who are keen to channel their investments to Nigeria, seeing this as an opportunity to hedge against volatilities in the FX market. Essentially, FPIs as well as other financial market participants recognise the opportunity in transforming risk into certainty, and are keen to effectively and efficiently manage their FX risks and exposures by executing the Futures contracts through the CBN’s Authorised Dealers (banks) on FMDQ. To provide additional comfort, further boost the flows of capital to the nation and invariably support the development of the OTC FX Futures market, the CBN has released the “Externalisation of Differentials on OTC FX Futures Contracts for Foreign Portfolio Investors” Circular. FMDQ, as the OTC FX Futures Exchange, will provide the settlement advices required to facilitate the externalisation of Naira-settled gains.

With the knowledge that the OTC FX Futures will serve to bring liquidity, transparency, price formation and diversification into the Nigerian FX market, making it globally competitive as part of efforts towards sustainable economic development, Nigeria has continued to remain an ideal investment hub for hedgers including FPIs. The OTC FX Futures market, through the strengthened collaboration of key stakeholders such as the CBN, FMDQ and Nigeria Inter-Bank Settlement System PLC, presents a host of opportunities for FPIs, importers, exporters governments and other end-users in managing their FX requirements and exposures.

Additional OTC FX Futures contracts have also been executed on the FMDQ platform on behalf of importers by Zenith Bank PLC and Rand Merchant Bank Nigeria Limited.

As the front-line market organiser and regulator of the fixed income, FX and derivatives markets, FMDQ is adequately equipped to deliver the needed transformation in the Nigerian financial market. The Exchange remains resolute in its drive to revolutionise the Nigerian financial markets landscape and the positive impact of the OTC FX Futures product is a much needed innovation to rejuvenate the FX market and the nation at large.

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