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FMDQ, market operators introduce order-based two-way Quote Market

By BusinessNews Staff on February 20, 2015

Following recent developments in the foreign exchange market, the FMDQ OTC Plc, which is the platform for the trading of fixed income securities and currencies, on Wednesday introduced the order-based two-way quote (QB2WAQ) forex market.

The QB2WAQ FX market, according to FMDQ and market operators, was introduced as a measure to check market volatility.
Under the price-based market, prices are determined from quotations made by market makers or authorised dealers.

Under this market, bid-offer spread is N0.10 kobo, while standard volume is $500,000.

On the other hand, the bid-based market is where the bid-ask spread is determined by orders made by customers to authorised dealers.
The market price is derived from the process of matching customers’ demands with supply.

Under this market, there are no standard bid-offer spreads and no standard bid-offer volumes. The volumes are based solely on customers’ demands.

Giving operational details of the market, Managing Director/Chief Executive Officer of FMDQ OTC, Mr. Bola Onadele, said authorised Dealers are required to express interests via bid and offer quotes, stating the volumes at which their customers have mandated them to buy or sell.

“They are to sell funds purchased from customers (example oil companies) to their other customers that require forex and to other banks in the inter-bank market who must be buying to satisfy a customer’s forex demand. Sell surplus funds not taken up by the customers and other banks to the Central Bank of Nigeria (CBN) at the prevailing CBN bid rate in order to comply with their Net Open,” he said.

He added that they are also to provide documentary evidence of the orders made by their customers, utilise funds within 72 hours of the receipt of the funds purchased, noting that such funds cannot be re-sold to other authorised dealers.

Explaining the timing of the change to OB2WQ, Managing Director/Chief Executive Officer of Guaranty Trust Bank Plc, Mr. Segun Agbaje, said interventions and market development initiatives are deployed on a need-basis, pending the readiness of the market to accept this at the time deployed.

According to him, other factors, such as the macro economy also drive the timing of market initiatives.

Agbaje said the OB2WQ presents a trading style where banks serve as intermediaries for customers, on a demand-driven basis presence of a buyer and a seller.

“The CBN, which is the largest forex buyer and seller, only intervenes when there is unmet demand or supply in the market,” he declared.
He said as an intervention participant, the CBN will intervene daily to provide liquidity through its clearing sessions by clearing all unmet demand and supply at the end of day, at the pre-advised daily clearing rates.

[ThisDay]

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