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All banks now free to be primary FX dealers, says CBN

All banks now free to be primary FX dealers, says CBN
June 17
20:28 2016

The Central Bank of Nigeria (CBN) has moved to douse fears of the emergence of a cartel in the new foreign exchange market, declaring the door open to all banks to be Foreign Exchange Primary Dealer (FXPD).

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The central bank had on Wednesday rolled out guidelines for primary dealers – banks that will play directly in the market – with conditions that they must have at least N200 billion in shareholders’ funds, N400 billion worth of forex assets and 40% liquidity ratio, although those who meet two of the requirements will qualify.

But in a revised set of guidelines seen by TheCable on Friday, the CBN has now thrown the door open to other banks to participate even if they do not meet the criteria for the choice of 10.

The reviewed guidelines stated: “In order to further deepen the FX market the Central Bank of Nigeria has decided to allow any Authorised Dealer who is interested in acting as a Foreign Exchange Primary Dealer (FXPD) to apply even if the said Authorised Dealer did not meet the quantitative criteria stated in the CBN Guidelines for Primary Dealership in Foreign Exchange Products released on June 15, 2016.

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“The Central Bank of Nigeria shall evaluate all the first set of registered FXPDs by December 31, 2016. The evaluation shall cover both quantitative and qualitative Foreign Currency Balance Sheet, adequacy of Pre-Settlement Risk (PSR) lines for other Authorised Dealers, etc). Please note also that the performance and market conduct of the FXPDs in their dealings with the CBN shall be a major factor in the said evaluation.

“For the avoidance of doubt, FXPDs are to provide two-way quotes (bid and offer) to the CBN and CBN reserves the right to deal on any of the quotes. As stated in section 4.1 of the Guidelines the CBN trade sizes with the FXPDs shall be as follows:

Product Standard Size ($’mm)
Spot 10.0
Forwards 5.0
FX Swaps 5.0
Naira-settled OTC FX Futures 5.0

“The immediate applicable bid-ask spreads shall be agreed between the CBN and FXPDs and these shall be reviewed periodically. The CBN reserves the right to adjust the standard sizes stated above.

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“All other provisions of the Guidelines remain valid.”

Fears had been expressed that appointing only 10 banks could lead to collusion and price-fixing and also lead to a run on the other banks whose customers may think are not healthy enough.

Industry insiders also fear that only banks that benefited from the previous FX regime would be favoured as FXDPs, thereby enjoying an undue advantage.

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1 Comment

  1. IzzyCN
    IzzyCN June 18, 11:24

    The CBN under Emefiele has never come up with policy that is not defective and the PXPD is no exception. Thank God for public reactions that has forced them to have a rethink. The effect of such policy if it has gone unchecked was have created more crises in the banking industry that is presently engaged in mass sacking of staff.
    It is high time the federal government start looking out for a more competent hand that will drive its economic policies effectively.

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