CBN Orders Banks to Keep N1b Collateral for OTC Trade

By Dipo Olowookere

Deposit Money Banks (DMBs) operating in the country have been directed to keep at least N1 billion collateral in form of government securities for them to participate in over-the-counter (OTC) trade settlement.

This directive was given by the Central Bank of Nigeria (CBN) in a circular dated May 31, 2018 and signed by the Director in charge of Financial Markets Department at the CBN, Dr Alvan Ikoku.

Dr Ikoku, in the circular, said the collateral was mandatory for any commercial bank willing to partake in the OTC transaction.

Any bank wish fails to adhere to this directive, the apex bank emphasised, would be excluded from the market.

The central bank explained in the circular that this move was part of efforts to “enhance efficiency in trading and post-trade activities and build confidence in the financial markets.”

“The pledge requirement is mandatory for all DMBs that wish to participate in OTC trade settlement.

“Lack of provision of the pledge or failure to top-up a pledge when required will result in exclusion from the market,” the circular stressed.

The CBN, which urged banks to “please ensure compliance,” stated that “this circular takes effect from June 1, 2018.”