Nigeria foreign exchange market calm as rates see stability

The bureau de change (BDC) market showed some stability as rates remained unchanged at $/N399.00 all through the previous week, revealing no change from that recorded during the penultimate week-ending November 11, 2016.

This followed an announcement by the FMDQ OTC Securities Exchange (the Exchange) on November 15, 2016, of a change in the methodology for the derivation of the daily Market Spot FX Closing Rate, a move which analysts see to have the potential to unify the official market’s Spot FX closing rates and thus reduce the fragmentation of the FX market.

In line with its mandate to promote price discovery and transparency in the Nigerian financial markets, the Exchange announced that the daily Market Spot FX Closing Rate shall, henceforth, be the last available executed trade on the designated Fx Trading System at 2:00pm

Analysts at Planet Capital Limited, and investment banking firm said that “what the FMDQ is doing will help the Exchange to properly manage the system and ensure efficient pricing and effective price discovery, and ensure that nobody can manipulate the rates”

In addition, the Securities and Exchange Commission-registered OTC securities exchange and self-regulatory organisation seeking to bring together Nigeria’s fixed income and currency operations under a single market governance structure, recorded weekly trading activity between the banks and their clients of $489.32 million, while daily turnover averaged $97.86 million during the same

The above trading volume represent a 3.02% decrease from the $504.54mm (average daily turnover of $100.91mm) recorded in the previous week trading session.

Meanwhile, information from the Exchange showed that the daily turnover in the Exchange for the week-ending November 4, 2016 averaged $100.91 million, with weekly turnover aggregating at $504.54 million.

The inter-bank market, on the other hand, opened the week at $/N350.25, and despite the prevailing market conditions, the Naira was also seen tom gain during the reporting week, closing at $/N305.50 against the close of $/N304.75 recorded the previous week (i.e. week-ending November 4, 2016).

Consequently, the spread between the BDC and inter-bank markets rates have narrowed, having opened the week at a spread of N93.75 to close at N93.50, representing a 0.8 per cent change from the N94.25recorded the previous week.

Remarkably, turnover in the Spot FX market amongst banks for the same trading week grew 211.25% as turnover rose from $38.65mm reported for the previous week-ending November 4, 2016, to $120.30mm for the reporting week, with average daily turnover of $24.06mm.

In the OTC FX Futures market, another maturity is set for Wednesday this week; the NGUS November 2016 contract, the a notional amount of c.$421.72mm.

The monthly member-client deals turnover amounted to $1.68 billion (daily average of $84.13 million) for October, whereas the aggregate turnover for September 2016 was $2.53 billion (daily average of ($110.14 million). The Exchange had recorded turnover of $3.64 billion (daily average of $165.25 million) and $2.49 billion (daily average of $124.45 million) for the months of July and August, respectively.

Analysts expressed the view that stakeholders, including market participants should collaborate by playing their various roles to ensure the credibility of the Nigerian FX Market.

Published exchange rates are usually reference rates meant for information purposes only, but the rates are often used by companies and the public for annual financial statements, preparing tax returns and statistical reports, and for economic analysis.

In a market notice to all FMDQ OTC securities exchange market participants signed by Jumoke Olaniyan, Divisional Head Market Development & Regulation, FMDQ and dated November 15, 2016, the Exchange enjoined participants to ensure that the OTC market was consistent with global best practice.

“In line with FMDQ’s mandate to promote price discovery, there is the need to ensure FX trading activities in the market are fully captured to reflect the required transparency to all stakeholders”, the notice said.