OTC FX Futures To Attract Capital Flow To Nation’s Fixed Income, Equity Market
FMDQ OTC Securities has announced that the OTC FX Futures market will attract significant capital flows to the Nigerian fixed income and equity markets and minimise the disequillibrum in the Spot FX market.
The Chief Executive Officer of FMDQ, Bola Onadele, who spoke at the launch of the product, in collaboration with the Central Bank of Nigeria (CBN) held in Lagos on Monday, assured stakeholders that there is no longer need to front-load FX requirements, which puts immense pressure on and distorts the Spot FX rate.
According to him, with the kick off of the Naira-settled OTC FX Futures market on Monday, and the CBN selling OTC FX Futures contracts of non-standardised amounts for different tenors from one month through to 12 months which will settle on bespoke maturity dates, providing liquidity in the product that will enable corporate treasurers effectively and efficiently manage their FX risk, the market has been positioned for a successful operation.
To ensure credibility of the contracts, especially at maturity, Onadele explained that the Spot FX rate would be the FMDQ Spot FX Rate Benchmark.
“Futures product is a major milestone development in the evolution of the Nigerian financial markets. The Futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals etc. to hedge (not speculate) to cope with exchange rate risk.
“It also affords the CBN a greater opportunity to manage exchange rate volatility, thus achieving greater market confidence, liquidity, improvement in business planning, job security, employment, better allocation of resources, global competitiveness of the Nigerian financial markets, and all in all, a thriving economy.”
The Governor of CBN, Godwin Emefiele explained that the product would offer Nigerians and investors the opportunity to rebuild the volatility witnessed in the FX market in the past.
Emefiele, who was represented by the Special Adviser to the governor on financial market at the occasion, Emmanuel Ukeje noted that the product would offer foreign investors the opportunity to channel their foreign exchange in flow into the country, thereby enhancing liquidity.
He urged manufactures to take advantage of the product to plan their business through Future FX instead of patronising the spot FX market to maximise cost.
The Chief Executive Officer of Stanbic IBTC Nominee, Akeem Oyewale, explained that the product would give certainty to investors especially the institutional portfolio investors to invest in Nigeria.
“It will allow them to get an idea of how much they can get their dollar whenever they so desired. It allows investors to be more confortable dealing with equities market in Nigeria.
“So if you are planning to get dividend of certain amount in the next three months and you want to fix your dollar, you can go to the futures market to do it based on the offers and quote that you have in the market.”
Adewale expressed optimism that the futures market in Nigeria would be a sustainable and stable market, noting that the key drivers of the products are credible institutions.