CBN transparency initiatives in FX Market may be at risk

The failure of the Corporates to meet the August 1 deadline for the execution of all FX trade with authorised dealers on the FMDQ Thomson Reuters fx trading system may be hindering the much needed transparency efforts initiated by the Central Bank of Nigeria (CBN) in the fx market, BusinessDay can authoritatively disclose.

 

This is even as analysis of FX turnover on trade between the banks (FMDQ Dealing Members) and their clients over the period post the FX market reform showed growing liquidity in the FX market.
Consequently, the average daily turnover for the weeks in July (excluding the week of the 3-day public holiday) ranged between  $100m and $240m.

 

The CBN, in its bid to promote transparency, professionalism and integrity in the FX market, issued a directive to all Authorised Dealers to execute FX trades with their corporate clients only through the FMDQ-advised Trading & Surveillance System.

 

Local and international analyst had viewed the development as a welcome move towards the resuscitation of the Nigerian FX market and restoring confidence in the system.

 

Whilst some corporates have commenced the necessary process to be on boarded, most others are yet to comply, appearing not to support the CBN’s market development agenda.
However, this added transparency in the market is one of the precursors to further inflows into the market, as well as improving the liquidity of the FX market.

 

Analysts said at the weekend that the CBN may be compelled to take some relevant steps to ensure this laudable initiative is not thwarted before it has even commenced, as the gains from the successful implementation of this initiative will further enhance the global competitiveness of the FX market.

 

It was further gathered at the weekend that FMDQ met with senior treasurers of the Financial Markets Dealers Association (FMDA)  to discuss price formation and market conduct to support the new FX market.

 

However, total turnover (banks vs clients trades) in the month of July 2016 was recorded at  $3.6bn, with a weekly average at $727mm and daily average at $155mm.

 

The inter-bank FX market closed at US$/N318.91 for week ending August 5, 2016, showing a slight appreciation of the naira from the previous week which closed at US$/N321.16.

 

The implication is that the market continues to position itself for a boost in supply from FPI trades.

 

JOHN OMACHONU