CBN Headquarters in Abuja Nairametrics Copy
- The Central Bank of Nigeria (CBN) is again offering bids for Naira-Settled OTC FX Futures (NSOFF) contracts with maturities of thirteen (13) to sixty (60) months.
- The aim is to make it easier for market participants to hedge currency risks over the long term and to enable them to manage the risk of currency fluctuations.
- NSOFF contracts are financial instruments that help market participants hedge against foreign exchange risk by exchanging currencies at a predetermined rate during the contract period.
The Central Bank of Nigeria (CBN) announced Monday that it will resume providing bid prices for Naira-Settled OTC FX Futures (NSOFF) contracts with maturities between thirteen (13) and sixty (60) months.
The move aims to make it easier for market participants to hedge foreign exchange risks over the long term.
Naira-Settled OTC FX Futures (NSOFF) contracts are financial instruments offered in the Nigerian financial market.
These contracts allow market participants to hedge against foreign exchange (FX) risk associated with fluctuations in the value of the Nigerian naira against other currencies.
The NSOFF market provides participants such as banks, corporates and institutional investors with a mechanism to manage their exposure to currency fluctuations.
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By entering into these contracts, they can mitigate the potential adverse effects of exchange rate fluctuations on their business, investments or financial position.
Effective July 3, 2023, the CBN will be submitting bids for NSOFF contracts with terms ranging from thirteen (13) to sixty (60) months for a period of one year ending on June 28, 2024.
However, offers for contract terms between thirteen (13) and twenty-four (24) months will be discontinued, with the CBN focusing exclusively on the NSOFF contracts with terms of twenty-five (25) to sixty (60) months during this period.
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To meet short-term hedging needs, market participants can turn to the FMDQ Naira-Settled Exchange-Traded FX Futures (NSEFF) contracts, which FMDQ Securities Exchange Limited is scheduled to launch on the FMDQ Exchange-Traded Derivatives (ETD) market on July 12 .2023.
In addition, Futures Banks will soon be providing quotes for NSOFF contracts with maturities between one (1) and twelve (12) months, with the exact date to be communicated by the exchange.
Beginning July 3, 2023, NSOFF Contracts with a term of thirteen (13) to sixty (60) months will be valued based on the executable bid prices provided by the CBN and the Futures Banks on the relevant valuation dates.
NSOFF contracts with a term of one (1) to twelve (12) months will continue to be valued at market value using the NAFEX rate as a reference.
The recent announcement regarding the resumption of offer pricing for NSOFF contracts means changes in the availability of these contracts based on their tenor, with the aim of giving market participants more options for managing their FX risk exposures.
The NSOFF contracts are settled in Naira, the local currency, and are traded over-the-counter (OTC), meaning they are not traded on a central exchange but directly between the parties.
These contracts have a fixed term, typically between thirteen (13) and sixty (60) months. During this time, the parties agree to exchange a certain amount of currency at a predetermined rate at the end of the contract.
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