As Nigeria is grapples with a severe foreign exchange crisis, fueled by declining dollar availability, speculative trading, and market distortions. The gap between the official exchange rate and parallel market rates has widened significantly, creating challenges for businesses and individuals relying on foreign currency for transactions.
In a move to address long-standing issues in Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) recently began the implementation of the Electronic Foreign Exchange Matching System (EFEMS). The new system aims to reduce speculation, eliminate price distortions, and create a more transparent and market-driven foreign exchange environment.
The EFEMS which kicked off officially in the first week of December, had passed through a two-week test run in November to ensure a smooth transition. According to the CBN all authorised dealers will be required to conduct forex transactions on the platform, where transactions will be reflected in real-time.
EFEMS is expected to significantly enhance governance and transparency in the Nigerian Foreign Exchange Market (NFEM), as the system aims to foster a stable and market-driven exchange rate accessible to the public. By reducing speculative activities and improving oversight, the CBN hopes to eliminate market distortions and strengthen regulation.
“The new system is expected to enhance governance, transparency, and facilitate a market-driven exchange rate that will be accessible to the public. This development will reduce speculative activities, eliminate market distortions, and give the CBN improved oversight capabilities to regulate the market effectively,” the CBN stated in a circular issued earlier.
To promote transparency, the CBN will publish real-time prices and buy/sell order data from the system. Additionally, the CBN and the Financial Markets Dealers Association (FMDA) will release detailed rules for EFEMS, supported by the Nigerian forex Code and revised Market Operating Guidelines.
The Bloomberg B-Match system has been approved as the official platform for EFEMS, offering spot-matching functionality for dollar-to-naira transactions and other currency pairings, providing a central limit order book where anonymous orders are matched based on mutual trading limits and other parameters.
The system introduces several operational benchmarks requiring that authorised dealers acquire and integrate Bloomberg B-Match technology with their internal systems. Asides this, they must be trained to operate and manage the platform efficiently. Transactions are also required to meet a minimum trade size of $100,000, with incremental clips of $50,000, with unmatched orders cleared at the end of the trading day and resubmitted the following day.
The EFEMS is initially limited to dollar-to-naira transactions, but other currencies may be added as deemed necessary by the CBN. All participants must submit daily reports of their transactions, with details of trades conducted outside the EFEMS platform also to be reported within 10 minutes post-transaction. Non-compliance with these requirements could result in suspension or removal from the platform.
By introducing EFEMS, the CBN hopes to address the country’s forex issues head-on, as the electronic trading platform is designed to promote better price discovery, increase operational efficiency, and curb speculative practices that have undermined the forex market’s stability.
“Authorised dealers are required to comply with extant guidelines and regulations governing the Nigerian foreign exchange market, and ensure that all necessary documentation, training, and systems integrations are concluded ahead of the go-live date,” the CBN circular stated.
Market analysts have welcomed the introduction of EFEMS, noting its potential to modernise Nigeria’s forex market. The system’s real-time transparency could help restore investor confidence and create a more equitable playing field for all market participants.
“The move by the CBN is a significant step toward achieving a unified and market-driven exchange rate. Transparency and better oversight will reduce arbitrage opportunities and speculative pressures,” said a Lagos-based financial analyst.
However, some stakeholders have raised concerns about the readiness of authorised dealers to integrate with the Bloomberg B-Match platform and comply with the new guidelines. There is also skepticism about whether EFEMS will be sufficient to bridge the gap between official and parallel market exchange rates without addressing the root causes of the FX crisis, such as limited dollar inflows and macroeconomic instability.
The EFEMS rollout marks a pivotal moment for Nigeria’s financial markets. By embracing electronic trading, the CBN is signaling its commitment to reforming the forex market and fostering a more transparent and efficient system.
