CBN’s ‘no-objection’ paves way for Commercial Papers market take-off

The take-off of a revived commercial papers (CPs) market in Nigeria is now a reality, following the decision of the Central Bank (CBN) to permit FMDQ OTC plc to actualise this important objective through unparalleled transparency and governance, BusinessDay can disclose.

We had exclusively reported that the CP market would be resuscitated in Q3 of 2014 after the FMDQ OTC plc expressed its readiness with the draft rules for the market which is expected to help deposit money banks (DMB) free their short-term credit from their books.

Sources close to this development confirmed to BusinessDay at the weekend that the apex bank has granted FMDQ OTC plc a letter of ‘no-objection’ to resuscitate commercial papers quotation on its platform.

“I am happy to inform you that the CBN has just granted FMDQ a letter of ‘no-objection’ which allows FMDQ to resuscitate commercial papers quotations on its platform,” our source said.

Financial market dealers say this re-organisation of the CP market couldn’t have come at a better time, as banks in compliance with Basel 3 capital and liquidity provisions, are beginning to re-position their balance sheets.

“An active and vibrant CP market is also of immense benefit to domestic and offshore investors – fund managers, pension fund administrators (PFAs), other corporates seeking investments in alternative asset classes and to corporates desiring more efficient ways to raise funds.

“We are excited about this milestone and look forward to its progress and the implementation of this product,” the source added.

FMDQ, following the CBN’s conferment of a “No-objection” to the Commercial Paper Quotations Process (CPQP), has released an exposure draft of its CP Quotations Rules, detailing documentation requirements and Issuing, Paying and Collecting Agent (IPCA) responsibilities, for review by the market. The debt-focused securities exchange has placed the draft CP Quotation Rules on its website.

“The CP quotations will take-off this month as potential CP issuers and IPCAs are already poised for engagement,” said Tumi Sekoni, business development officer, FMDQ.

“FMDQ is now set to quote its first CP on its platform,” Sekoni said.

Over the past four years, the CP market in Nigeria became impaired, shrinking drastically in size, following the CBN’s November 18, 2009 regulation on the treatment and issuance of CPs (Guidelines on the Issuance and Treatment of Bankers’ Acceptances and Commercial Papers).

FMDQ, focused on its goals to ensure market efficiency, governance and liquidity, looked to addressing the dearth in the CP market through market development initiatives that would provide price/value data and detailed issuers’/issue information to stakeholders – investors, issuers and regulators.

Consequently, the FMDQ CPQP was developed with the aim to strengthen the governance of the CP market and position the money market for improved price formation and doubtlessly, the emergence of a transparent corporate interest rate fixing in the Nigerian OTC financial market.

Over the past four years, Nigeria’s CP market has become impaired and the size has shrunk drastically from monthly outstanding volumes of about N1 trillion in December 2008 to N9.8 billion in the fourth-quarter (Q4) of 2013.

Iheanyi Nwachukwu