How CBN’s new FX Code will enhance market liquidity, transparency

The Central Bank of Nigeria (CBN) has released a new Foreign Exchange (FX) Code aimed at enhancing liquidity, transparency and guiding market participants in Nigeria’s foreign exchange sector.

The code represents a set of principles widely recognised as good practices in the global foreign exchange market. The CBN, in its regulatory and supervisory role, crafted the FX Code to address risks in Nigeria’s evolving financial landscape while strengthening the integrity and functionality of the foreign exchange market.

According to the document, the FX Code was developed in response to Nigeria’s financial transformation over the years, which, despite significant progress, still presents certain risks. The code seeks to establish standards that ensure the efficient functioning of the wholesale FX market, further reinforcing the country’s flexible exchange rate system. “The FX Code is intended to facilitate a fair, liquid, and transparent market environment that inspires confidence among participants,” the document states.

The code is specifically designed to promote a robust market characterised by fairness, openness, and adequate transparency, enabling a diverse group of participants to engage effectively at competitive rates that reflect accurate market information. It outlines behavioral standards and best practices that align with global expectations.

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Participants covered by the FX Code include authorised dealers licensed by the CBN under the CBN Act 2007 and the Bank and Other Financial Institutions Act (BOFIA) 2020, as well as other entities involved in wholesale foreign exchange activities as part of their licensed operations.

The FX Code is structured around six core principles. Firstly, ethics is emphasised, requiring market participants to act ethically and professionally to uphold the fairness and integrity of the foreign exchange market. Secondly, governance plays a critical role, with participants expected to establish clear and effective frameworks to oversee their foreign exchange activities responsibly.

Another fundamental principle focuses on execution, where participants are required to exercise due diligence when negotiating and executing transactions to foster a transparent and competitive market. Information sharing is also highlighted, urging participants to communicate clearly and accurately while safeguarding confidential information to promote robust communication in the market.

Risk management and compliance form another pillar, with participants expected to maintain strong controls to identify, manage, and report risks effectively. Additionally, the code stresses the importance of confirmation and settlement processes, encouraging participants to implement efficient post-trade practices that ensure smooth and timely settlement of transactions.

By adhering to these principles, the FX Code aims to position Nigeria’s foreign exchange market as one that operates efficiently and in alignment with global standards, analysts said, adding that the CBN’s initiative reveals its commitments to fostering a reliable and well-functioning financial environment, critical for sustaining investor confidence and supporting Nigeria’s economic growth.