By Modupe Gbadeyanka
A reference exchange rate for the newly introduced special foreign exchange window for investors and exporters by the Central Bank of Nigeria (CBN) has been introduced by the Financial Market Dealers Quote (FMDQ).
FMDQ said on Monday that the reference rate would be published 12 noon every day via three packages: live fix available at 12:00 noon daily via the FMDQ e-Markets Portal; delayed (24 hours) published via the FMDQ website; and historical, available via the FMDQ e-Markets Portal.
The newly introduced reference exchange rate is called the Nigeria Autonomous Foreign Exchange Rate Fixing (NAFEX).
Last week, the central bank introduced a special foreign exchange window for investors and exporters aimed to boost liquidity in the foreign exchange market and ensure timely execution and settlement for eligible transactions.
According to FMDQ, NAFEX will NAFEX will “benefit the Nigerian economy in general and the financial industry in particular in a number of ways, including serving as a fixing for the settlement of FX derivatives, promoting transparency and awareness of USD/NGN rates, enabling foreign and local investors benefit from a market-driven independent reference rate and increasing forward contracts usage towards a reduction of investments in currency principals and foreign currency line utilisation.
Other benefits include developing hedge products and derivatives, thus improving the standard of the Nigerian FX market, providing growth and income potentials for market players through the trading of hedging products, and serving as a benchmark for portfolio valuations, conversions, performance measurement and audits.
Explaining the fixing methodology, FMDQ stated that the NAFEX Spot Rates “shall be determined as detailed below and contributing banks shall be expected to submit only ‘professional spot quotes’.
“Where a contributing bank submits an unprofessional quote, such a quote will automatically be disqualified from the NAFEX computation. Contributing banks shall quote single rates for transaction sizes of $5 million and above or as advised by FMDQ, at the time of the poll.”
It stated further that, the polled rate would be based on the “submissions of 10 contributing banks and calculated using a trimmed arithmetic mean.
“Upon receipt of quotes, the individual contributing banks’ submission is ranked in descending order. The lowest and highest two quotes are eliminated from the ranked rates leaving only the middle six rates.
“The arithmetic mean of the remaining rates is then calculated to two decimal places and disseminated as the NAFEX Spot Rate.”
”Where FMDQ receives fewer than the required number of submissions by the time NAFEX is due for publication, the reduced submissions methodology detailed below shall apply:
“NAFEX will be published provided that two (2) or more quotes are obtained on a daily basis
“The calculation methodology shall remain the same irrespective of the number of submissions received. However, under the reduced submissions methodology, the number of submissions excluded on the high and the low side (‘topped and tailed’) shall apply,” it explained further.
FMDQ stated also said, “In instances where there are quotes below the documented threshold, the previous day’s NAFEX shall be maintained and published as the current NAFEX.
“In circumstances of a force majeure event, leading to the unavailability of quotes in the market, the previous day’s NAFEX will be maintained and published as the current NAFEX.
“Any republished rates from the previous business day shall be identified as such on the FMDQ e-Markets Portal.
“After five consecutive business days of republishing the previous day’s NAFEX (in this case, the NAFEX of 5 business days prior), an FMDQ Market Review Committee meeting shall be convened in a special session to devise a strategy for the appropriate determination of future NAFEX during the extreme market condition, towards preserving the continuity of the NAFEX publication.”
Adedapo Adesanya