The Central Bank of Nigeria (CBN) has announced fresh guidelines for interbank foreign exchange (FX) trading via its Electronic Foreign Exchange Matching System (EFEMS), effective from November 25, 2024.
The new directive, signed by Dr. Omolara Duke, Director of the Financial Markets Department, mandates a minimum trade value of $100,000 for all interbank FX transactions.
This move is aimed at enhancing market transparency, ensuring efficient trading, and strengthening compliance within Nigeria’s FX market.
EFEMS aims to streamline trading and reduce risks
The newly issued guidelines are designed to streamline interbank FX trading and reduce counterparty risks. By using EFEMS, the CBN aims to create a more transparent and orderly FX market while adhering to its regulatory framework.
The CBN has designated Bloomberg’s BMatch as the official order-matching platform for these transactions, with trading hours set between 9:00 AM and 4:00 PM West Africa Time (WAT) on business days.
A key provision in the guidelines is the establishment of a $100,000 minimum tradable amount per transaction. Additionally, the CBN has set incremental clip sizes of $50,000, which participants must adhere to. The EFEMS platform will be limited to spot FX transactions involving the Nigerian naira (NGN) and the United States dollar (USD), although the CBN reserves the right to introduce other currency pairs in the future if deemed necessary.
The guidelines document read, “All trades consummated on EFEMS are binding unless canceled by mutual agreement of both parties with written approval from the CBN.
“The minimum tradable amount is US$100,000.00, with incremental clip sizes of US$50,000.00.
“Participants must set credit and settlement limits for other counterparties in the system. Transactions exceeding these limits will not be executed.
“Participants must have adequate credit and settlement limits set for the CBN as its counterparty bank.
“Participants are required to comply with the Nigerian Foreign Exchange Code and other CBN regulations.”
Key features of the EFEMS guidelines
The guidelines outline several crucial operational protocols for participants:
- Binding Trades: All trades executed on EFEMS are binding unless mutually canceled by both parties with written approval from the CBN.
- Credit and Settlement Limits: Participants are required to set credit and settlement limits for counterparties within the system. Transactions that exceed these limits will not be executed. Similar limits must also be set for the CBN as a counterparty bank.
- Compliance with CBN Regulations: All participants must adhere to the Nigerian Foreign Exchange Code and other relevant CBN regulations.
- Anonymity and Reporting: Trades conducted via EFEMS will remain anonymous until matched, with counterparty details revealed only after transactions are completed in accordance with settlement protocols. Additionally, any transactions exceeding set limits or conducted outside the prescribed parameters must be promptly reported and logged on the FX blotter within 10 minutes.
Participation criteria and platform Access
Participation in the EFEMS is limited to authorized dealer banks that are licensed by the CBN. Other financial institutions interested in joining the platform must obtain prior approval from the CBN.
All participants are required to execute agreements with the CBN-approved platform provider, maintain accurate profiles, and operate within prescribed credit and settlement limits. Should a participant wish to withdraw from the platform, they must provide a 30-day notice and resolve any outstanding obligations before exiting.
Monitoring and penalties for non-compliance
The CBN has emphasized that it will closely monitor all trades conducted on EFEMS to ensure market integrity and transparency. Participants are obligated to submit daily reports detailing trade volumes, settlement statuses, and counterparties. Any violation of the EFEMS guidelines or related regulations will lead to strict penalties, including the suspension or revocation of access rights to the platform.
The CBN also reserves the right to publish aggregated or disaggregated trade data for market analysis, subject to confidentiality agreements.
Bloomberg BMatch to go live on December 2, 2024
- In a related development, the CBN announced that the Bloomberg BMatch system will officially go live as the EFEMS for foreign exchange trading on December 2, 2024.
- The system aims to facilitate seamless and uniform trading among market participants, while also enabling the CBN to efficiently monitor market performance and manage data.
- The central bank has urged all authorized dealers and banks to liaise with Bloomberg representatives to expedite the onboarding process and address any technical or operational issues promptly.
- This move is expected to significantly improve the FX market’s operational efficiency and transparency, while further enhancing the CBN’s oversight capabilities.