What to know about CBN’s electronic FX trading system

The Central Bank of Nigeria (CBN) has shed more light on the Electronic Foreign Exchange Matching System (EFEMS) by setting new guidelines for authorised Foreign Exchange (FX) dealers.

The system, which went live on Monday, is designed to boost the operational efficiency and transparency of the nation’s FX market.

Here are facts to know about the CBN’s electronic trading system, EFEMS:

Authorised Platform

The CBN has approved the Bloomberg B-Match system as the authorised platform for interbank trading. This means that the authorised dealers will need to acquire the technology to trade.

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“Authorised dealers are advised to acquire the technology and resources to integrate with the Bloomberg BMatch system, train relevant personnel to operate and manage the platform effectively and ensure full compliance with all operational guidelines and standards associated with the platform,” the CBN report said.

According to the CBN, the Bloomberg BMatch platform is expected to enhance market integrity and facilitate better price discovery.

The system offers spot matching functionality to the interbank community for US Dollar against other currencies. BMatch allows anonymous orders to be placed into a central limit order book, which are displayed and then matched with counterparty orders based on mutual trading limits and other parameters configured by each bank.

The solution can be integrated with banks’ middle and back-office systems. Consolidated trade statistics can also be calculated and made available to the market, according to a Bloomberg report.

Authorised dealers

The EFEMS is open to all authorised dealer banks licensed by the CBN, while other participants are mandated to seek approval from the CBN for access to the platform and the ability to execute agreements with the platform’s provider. Participants are also expected to maintain an accurate and updated profile.

Mode of Operation

The electronic trading system will be used exclusively to conduct transactions involving the dollar and the naira, while other currencies may be introduced as the CBN deems fit.

Authorised dealers can trade a minimum amount of $100,000 with incremental clips of $50,000. Once a quote has been matched with the selling and buying parties, the details of the transaction will be revealed for settlement and transparency.

Meanwhile, unmatched orders will be cleared at the end of each trading day, and must be resubmitted the following day to count.

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Data guidelines

All authorised dealers are mandated to submit daily reports of transactions to CBN. FX transactions conducted outside the EFEMS are also to be reported on the EFEMS, not later than 10 minutes post-transaction.

The CBN also stated that participants are expected to comply with the Nigerian Foreign Exchange Code and other CBN guidelines, otherwise may be suspended or removed from the trading platform.

Nigeria is facing an acute forex crisis. Market distortions by speculators and illicit traders have also worsened the nation’s dollar availability.

Hence, the launch of an electronic trading system is targeted at increasing transparency and reducing the speculative nature of the FX market. Ultimately, the goal is to enhance operational efficiency, and provide a stable FX environment.