February 1, 2024/CSL Research

In a circular released earlier this week, the CBN warned authorised dealers to stop the unethical practice of reporting inaccurate and misleading information on transactions concluded in the financial market or risk facing sanctions.

According to the CBN, investigations carried out revealed that authorized dealers sometimes reported lower transaction rates. The practice by some FX market participants was to quote lower rates at the I &E window, while actually selling dollars at rates benchmarked against the parallel market rate. This unethical practice we believe is a fallout of the previous administration’s
attempts at unofficially capping rates at which FX is supplied to the I&E window.

The Central Bank of Nigeria (CBN) once again stressed that financial market transactions are to be conducted on a ‘willing buyer willing seller’ basis, and therefore prices are to be quoted and displayed in a transparent manner. Adherence to this, led to a depreciation at the official window to c.₦1455.59/US$ as of yesterday.

In response, FMDQ announced revisions to the FX pricing methodologies. One of the main changes is that the publication of NAFEM spot opening rates has been suspended indefinitely. To allow market participants rely on real-time market data, Dealing Member (Banks) (“DMBs”) have been strongly urged to consistently execute and report their FX market transactions accurately and promptly during trading hours on the FMDQ-designated FX Trading System.

These changes are an attempt by the apex bank to stem the heightened depreciation of the Naira, especially at the parallel market. The expectation is that the ability to price freely and transparently at the official window will boost liquidity at the official window and diminish arbitrage opportunities. The FMDQ stated that these changes would improve the accuracy and reliability of the NAFEX and NAFEM rates and make them more reflective of market conditions.

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