The Central Bank of Nigeria, CBN, has introduced the Electronic Foreign Exchange Matching System (EFEMS) to check forex market distortions, eliminate speculative activities and instill transparency.
The CBN announced this via a circular on Thursday signed by Omolara Duke, director of Financial Markets Department.
The system is expected to instantly reflect data on all FX transactions conducted in the interbank market and approved by the CBN.
The CBN will also publish real time prices and buy/sell orders data from this system.
The EFEMS will be launched not later than December 1, 2024, but a test run will be done for two weeks in November 2024.
Nigeria is facing an acute forex crisis, but there have been market distortions by speculators and illicit traders, which worsen the nation’s dollar availability.
Read also: CBN introduces matching system to eliminate FX market distortions
Hence the system is launched in a bid to give the CBN improved oversight capabilities to effectively regulate the market, reduce the rate of speculation and stabilise the foreign exchange market.
The CBN will publish the rules of engagement for the EFEMS for both authorised dealers and buyers, in collaboration with the Financial Markets Dealers Association (FMDA).
The Nigerian FX code and the revised market operating guidelines are also available to provide guidance to market participants.
All authorised dealers are expected to comply with existing guidelines and regulations of the FX market, the CBN said.
They are also expected to ensure that all necessary documentation, training, and systems integrations are concluded before December 1, 2024.
The CBN has also published the Nigerian FX code via its website. The code is grounded on six principles and applies to all market participants, including banks and financial institutions licensed by the CBN.
The principles include ethics, governance, execution, information sharing, risk management and compliance, confirmation and settlement processes.
The FX Code draws on principles from the FX Global Code and best practices adopted in leading jurisdictions, the report said.
EFEMS is commonplace in developed markets. It is also seen in some developing markets. It offers real-time information on currency rates, trading volumes, and market activity. For example, in China and India, the FX market is monitored through electronic platforms to ensure compliance with government regulations. In India, the platform in use is called the FX-Retail, and in the EU, the system is known as the Target Instant Payment Settlement (TIPS).
The EFEMS is the latest in a series of efforts by the CBN to effectively manage Nigeria’s FX market despite a declining Naira.
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