July 02, (THEWILL) – The Central Bank of Nigeria (CBN), will on Monday, July 3, begin offer quotes for Naira-Settled OTC FX Futures (NSOFF), contracts with tenors ranging from thirteen (13) to sixty (60) months.
The move, the apex bank said, is aimed at facilitating long-term foreign exchange (FX) risk hedging for market participants.
Naira-Settled OTC FX Futures (NSOFF) contracts are financial instruments offered in the Nigerian financial market. These contracts allow market participants to hedge against foreign exchange (FX) risks associated with fluctuations in the value of the Nigerian Naira against other currencies.
The NSOFF market provides participants, including banks, corporations, and institutional investors, with a mechanism to manage their exposure to currency fluctuations.
By entering into these contracts, they can mitigate the potential adverse effects of exchange rate movements on their business operations, investments, or financial positions.
Effective July 3, 2023, the CBN will quote offers for NSOFF contracts with tenors between thirteen (13) and sixty (60) months for a period of one year, until June 28, 2024.
However, offer quotes for contract tenors between thirteen (13) and twenty-four (24) months will be discontinued, with the CBN focusing solely on the twenty-five (25) to sixty (60) months NSOFF contracts during this period.
According to Nairametrics, to meet short-term hedging requirements, market participants can turn to the FMDQ Naira-Settled Exchange-Traded FX Futures (NSEFF) contracts, set to be introduced by FMDQ Securities Exchange Limited in the FMDQ Exchange-Traded Derivatives (ETD) Market on July 12, 2023.
Additionally, Futures Banks will soon provide quotes for NSOFF contracts with tenors ranging from one (1) to twelve (12) months, with the specific date to be communicated by the Exchange.
Effective July 3, 2023, NSOFF contracts, with terms to maturity of thirteen (13) to sixty (60) months will be valued based on the executable offer quotes provided by the CBN and Futures Banks on relevant valuation dates.
On the other hand, NSOFF contracts with terms to maturity of one (1) to twelve (12) months will continue to be marked-to-market using the NAFEX rate as the reference.
The availability of NSOFF contracts has been adjusted based on their duration to offer market participants more options for managing their foreign exchange risk exposures.
The NSOFF contracts are settled in Naira, the local currency, and are traded over-the-counter (OTC), meaning they are not traded on a centralised exchange, but rather directly between parties.
These contracts have specific durations, typically ranging from thirteen (13) to sixty (60) months, during which the parties agree to exchange a specified amount of currency at a predetermined price at the contract’s maturity.
About the Author
