The recent announcement by the Central Bank of Nigeria (CBN) indicates that it will resume providing offer quotes for Naira-Settled OTC FX Futures (NSOFF) contracts with tenors ranging from thirteen (13) to sixty (60) months.
This decision aims to facilitate long-term foreign exchange risk hedging for market participants.
NSOFF contracts are financial instruments offered in the Nigerian financial market, allowing market participants to hedge against foreign exchange risks associated with fluctuations in the value of the Nigerian Naira against other currencies.
These contracts provide a mechanism for banks, corporations, and institutional investors to manage their exposure to currency fluctuations.
Starting from July 3, 2023, the CBN will quote offers for NSOFF contracts with tenors between thirteen (13) and sixty (60) months for one year until June 28, 2024.
However, offer quotes for contract tenors between thirteen (13) and twenty-four (24) months will be discontinued during this period. The CBN will focus solely on the twenty-five (25) to sixty (60) months NSOFF contracts.
To meet short-term hedging requirements, market participants can utilize the FMDQ Naira-Settled Exchange-Traded FX Futures (NSEFF) contracts, which will be introduced by FMDQ Securities Exchange Limited in the FMDQ Exchange-Traded Derivatives (ETD) Market on July 12, 2023.
Futures Banks will also provide quotes for NSOFF contracts with tenors ranging from one (1) to twelve (12) months, with the specific date of availability to be communicated by the Exchange.
Effective July 3, 2023, NSOFF contracts with terms to maturity of thirteen (13) to sixty (60) months will be valued based on the executable offer quotes provided by the CBN and Futures Banks on relevant valuation dates.
On the other hand, NSOFF contracts with terms to maturity of one (1) to twelve (12) months will continue to be marked-to-market using the NAFEX rate as the reference.
The availability of NSOFF contracts has been adjusted based on their duration to offer market participants more options for managing their foreign exchange risk exposures.
These contracts are settled in the local currency, Naira, and are traded over the counter (OTC), which means they are not traded on a centralized exchange but rather directly between parties.
NSOFF contracts have specific durations, typically ranging from thirteen (13) to sixty (60) months, during which the parties agree to exchange a specified amount of currency at a predetermined price at the contract’s maturity
