The Investors' & Exporters' FX Window, also known as the I&E FX Window, is a special trading segment introduced by the Central Bank of Nigeria (CBN) to enhance liquidity and facilitate foreign exchange (FX) transactions for investors, exporters, and end-users. This window aims to deepen the FX market and ensure efficient price discovery based on prevailing market conditions. By providing a dedicated platform for FX trades, the CBN aims to accommodate all FX obligations and promote a competitive marketplace.

Purpose of the I&E Window

The primary goal of the Investors' & Exporters' FX Window is to enhance liquidity in the Nigerian FX market. It serves as a market trading segment for investors, exporters, and end-users, allowing FX trades to be made at exchange rates determined based on prevailing market circumstances. This ensures efficient and effective price discovery in the Nigerian FX market.

Eligible Transactions

The I&E Window allows for various types of transactions, including invisible transactions, bills for collection, and trade-related payment obligations. Invisible transactions cover a wide range of activities such as loan repayments, dividends/income remittances, capital repatriation, consultancy fees, technology transfer agreements, personal home remittances, and other eligible invisible transactions outlined in the CB Foreign Exchange Manual.

Bills for collection, which involve the collection of payments on behalf of customers, are also eligible to access the I&E Window. Additionally, any other payment obligations arising from trade activities can be processed through the I&E Window at the customer's discretion.

It's important to note that for the above permitted invisible transactions and bills for collection, only US dollars sourced from the CBN FX Window (limited to Secondary Market Intervention Sales - SMIS) Wholesale (Spot and Forwards) are eligible for purchase. Any other trade-related payment obligations can be executed through the I&E FX Window at the customer's request.

Participants

The supply of foreign currency to the I&E FX Window comes from various entities, including portfolio investors, exporters, Authorized Dealers (such as banks), and the Central Bank of Nigeria (CBN). Portfolio investors engaged in the Nigerian market who possess foreign currency that they want to exchange for the Naira can participate in this window. Exporters, businesses involved in export activities, can convert their foreign currency earnings into the local currency through the I&E Window.

Authorized Dealers, CBN-licensed entities such as banks, act as intermediaries in FX transactions and facilitate the buying and selling of foreign currency for their customers. The CBN also actively participates in this window as a major provider of liquidity and ensures professional market conduct.

Price Discovery Mechanism

To facilitate price discovery in the Nigerian FX market, participants at the I&E Window currently trade via telephone. However, the CBN encourages corporates to onboard the FMDQ Thomson Reuters FX Trading & Auction Systems to enhance market transparency. FMDQ, as the designated platform, polls buying and selling rates from major participants and provides indicative market depth information, contributing to the price discovery process.

Role of FMDQ

FMDQ Securities Exchange (FMDQ) plays a crucial role in the I&E Window by providing market information and transparency. The organization publishes information on its corporate website and data subscription portal daily, including details about the activities in the I&E FX Window. The Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate, which serves as the reference rate for spot FX operations in various recognized FX trading segments, is also available on the FMDQ platform.

Difference between NAFEX and I&E Window Rates

It's common for people to confuse the NAFEX rates and I&E Window rates. However, there is a significant difference between the two rates and how they are applied. NAFEX rates refer to the Nigerian Autonomous Foreign Exchange Fixing, which is a reference rate used for spot foreign exchange operations in recognized FX trading segments, including the I&E Window, interbank market, and other approved trading segments.

On the other hand, I&E Window rates are the exchange rates at which foreign currency trades are executed within the Investors' & Exporters' FX Window. These rates are determined based on prevailing market circumstances and serve as benchmarks for transactions conducted in the I&E Window.

Conclusion

The Investors' & Exporters' FX Window plays a crucial role in enhancing liquidity, transparency, and price discovery in the Nigerian FX market. By providing a dedicated platform for investors, exporters, and end-users, the CBN ensures efficient and effective price discovery based on prevailing market conditions. The participation of various entities, such as portfolio investors, exporters, and Authorized Dealers, contributes to a competitive marketplace.

Market participants can rely on the I&E FX Window and the supporting infrastructure provided by organizations like FMDQ to engage in FX trading with confidence and efficiency. The I&E Window is a significant step towards deepening the Nigerian FX market and accommodating the FX obligations of investors, exporters, and end-users. Through this window, the CBN aims to foster a vibrant and diverse FX market that supports economic growth and stability in Nigeria.

The Firma Advisory is always available to provide advisory services to investors and exporters on ways to navigate their foreign exchange transactions. Kindly reach out to us at hello@thefirmaadvisory.com for more information.