OTC fixed Income, currency transaction declines by N320bn YoY

In the month of June 2016, the turnover of transactions carried out in the Fixed Income and Currency (FIC) markets amounted to N9.36trillion, an increase of 26 percent (N1.93trn) over the value recorded in May and a decline of 3.26% (N320billion) YoY.

Activities in the Treasury Bills (T-Bills) market remained dominant, accounting for 38.14% (May – 43.80%) of total turnover while Secured Money Market (Repurchase Agreements (Repos)/Buy-Backs) came second place, accounting for 26.5% (May – 31.16%).

Total Foreign Exchange (FX) market transactions accounted for 26.07% (May – 13.30%), while FGN bonds and Unsecured Placements/Takings accounted for 4.85% (May – 9.28%), and 4.34% (May – 2.41%) of the total turnover respectively.

The recent OTC Monthly released by FMDQ OTC Securities Exchange shows Access Bank plc, Diamond Bank plc and Stanbic IBTC Bank Plc maintained their positions as leaders for the 4th month running, ranking 1st, 2nd and 3rd respectively in the value traded for the overall over-the-counter (OTC) market. However, Access Bank plc moved a step up from 2nd to 1st place, pushing Diamond Bank plc to 2nd place.

The three (3) banks have a combined market share representing 28% of the overall trades executed (buy and sell sides) in the markets. Rand Merchant Bank Nigeria Limited, Unity Bank Plc and Keystone Bank Limited remained at the bottom of the League Table, occupying positions of 21st, 22nd and 23rd respectively.

United Bank for Africa PLC, Access Bank PLC and Stanbic IBTC Bank PLC topped trading amongst Dealing Member (Banks) for the overall market. Leaders in the Dealing Member (Banks) vs. Client trading category were Diamond Bank PLC, Access Bank PLC and Stanbic IBTC Bank PLC. The leaders in the Dealing Member (Banks) vs. Central Bank of Nigeria (CBN) trading category were Diamond Bank PLC, Skye Bank PLC and Standard Chartered Bank Nigeria Ltd

FX Market

Milestones were recorded in the FX market as the CBN took steps to restructure the market. The Apex Bank released revised guidelines for the FX market, effectively liberalising the market, and appointed Foreign Exchange Primary Dealers (FXPDs).

Furthermore, in a very bold and decisive move, the CBN cleared the backlog of transactions in the market via a one-time Special Secondary Market Intervention Sales (SMIS) auction. Accumulated backlog totalling $4.02bn, was cleared with $0.53bn (13.24%) settled spot and the remaining 86.76% ($3.49bn) spread over one (1) to three (3) months forward contracts.

On June 27, “Naira-settled OTC FX Futures product” was also introduced into the Nigerian FX market with the CBN as the pioneer seller.

The CBN offered twelve (12) consecutive monthly contracts with initial notional amounts of $1.00bn each. OTC FX Futures Contracts totaling $38.80mm were executed by the end of the month.

Transactions in the FX market settled at $7.51bn, an increase of 83.82% ($3.43bn) compared with the value recorded in May. YoY turnover in the FX market declined by 24.28% ($2.41bn). Member-Member trades settled at $0.90bn in June (May – $0.62bn), accounting for 11.96% of turnover in the FX market. Member-Client trades surged by 90.50% to settle at $6.62bn.

The exchange rate at the CBN window was officially closed on June 20, making the inter-bank exchange rate the official rate. The inter-bank rate depreciated by 29.73% to close the month at $/282.97 whilst the parallel market traded at $/345.00 during the course of the month.

A detailed analysis of the FX market revealed that the top three Dealing Member (Banks)  –Diamond Bank plc, United Bank for Africa plc, and Access Bank plc – have a combined FX market share representing circa 38% of the overall trades executed in the market. The Dealing Member (Banks) vs. Client trades comprised the bulk of this market share, accounting for 66% of the trades executed. In the overall FX Derivatives market, the top three (3) positions (with a combined market share of circa 73%) were occupied by Diamond Bank PLC, Standard Chartered Bank Nigeria Ltd. and Stanbic IBTC Bank PLC respectively; with the Dealing Member (Banks) vs. Client trades accounting for 60% of these trades.

Standard Chartered Bank Nigeria Ltd., Diamond Bank PLC and Stanbic IBTC Bank PLC respectively, came in at 1st, 2nd and 3rd positions in the FX Swaps market; while in the FX Forwards market, Stanbic IBTC Bank Plc, Fidelity Bank Plc and Guaranty Trust Bank Plc ranked 1st, 2nd and 3rd place respectively.

Fixed Income Market (T.bills and FGN Bonds)

Turnover in the Fixed Income market settled at 4.02trn; 2.05% (0.08trn) above the previous month’s value, with transactions in the T.bills market accounting for 88.71% (May – 82.51%) of the turnover. Outstanding T.bills closed the month at 5.28trn (May – 5.42trn) whilst outstanding FGN bonds increased 1.73% (112.00bn) to close at 6.57trn. Trading intensity in the Fixed Income market settled at 1.24 and 0.07 for T.bills and FGN bonds respectively, with maturities between 1M to 3M being the most actively traded (1.27trn) in the review period. The yield curve closed the month on an upward slope. Yields increased on all tenors, save the 1M, which recorded a decline.

Spread between the 10Y and 3M yields settled at 4.63% down from the 4.91% recorded in the previous month, indicating a slight flattening of the curve. Stanbic IBTC Bank PLC, Access Bank PLC and Ecobank Nigeria Ltd. maintained their positions as leaders in the T.bills market, occupying 1st, 2nd and 3rd positions respectively, with their combined market share at 27% of the overall trades executed. 92% of the trades carried out in this market during the period under review were between Dealing Member (Banks). With a combined market share of 43% of total Bonds traded, Access Bank PLC, Ecobank Nigeria Ltd. and Stanbic IBTC Bank PLC maintained their positions as the leaders for the 2nd month running in the value traded in this market. Trades amongst Dealing Member (Banks) accounted for 80% of this market share

Money Market (Repos / Buy-Backs and Unsecured Placements / Takings)

Activities in the Money Market settled at 2.88trn (May – 2.49trn), with 86.02% recorded in secured placements (Repos/Buy-Backs). Unsecured Placements/Takings grew by 125.57% (0.22trn) to close the month at 0.40trn, a decline of 57.26% (0.54trn) YoY. Although liquidity in the banking system was strained due to withdrawals for FX spot and forwards ($4.02bn) settlement by the CBN, OBB and ON rates closed the month at 4.42% & 4.83% respectively.

For Repos/Buy-Backs, First Bank of Nigeria Ltd. rose in the League Tables, swapping positions with Diamond Bank PLC, to occupy 1st place, with Diamond occupying 2nd place, while United Bank for Africa PLC maintained its position ranking 3rd place. Inter-member trades dominated this market, with all trades executed by the top three (3) accounting for 34% of the market share.

In Unsecured Placements/Takings, United Bank for Africa Plc ranked 1st place, pushing Ecobank Nigeria Ltd. down to 4th place, while Access Bank Plc ranked 2nd place, rising from 6th place pushing Stanbic IBTC Bank Plc to 3rd place.

The top three (3) banks represent about 60% of the trades in this category. Trades between Dealing Member (Banks) accounted for about 98% of this market share. No trading occurred under the Dealing Member (Banks) vs. Client trading category in the period January to June 2016 for Repos/Buy-Backs and Money Market Derivatives, with only United Bank for Africa Plc and Ecobank Nigeria Limited engaging in the trading of Unsecured Placements/Takings.

For this same period, no trading occurred for T.bills, Bonds and Money Market Derivatives under the Dealing Member (Banks) vs. CBN trading category. However, there was increased activity in the trading of FX Derivatives, with Diamond Bank Plc, Fidelity Bank Plc and Guaranty Trust Bank Plc ranking 1st, 2nd and 3rd place respectively in a market that had been relatively quiet with only two (2) major participants.

Skye Bank PLC and Citibank Nigeria Limited were the only participants in Repos/Buy-Backs, while FSDH Merchant Bank Ltd. was the sole participant in the trading of Unsecured Placements/Takings under this category 

Market Surveillance

The number of executed trades captured on the E-Bond trading platform for June was 13,887 against 13,664 recorded in the previous month. There was a decline of 34.94% on the order book while RFQ trades recorded an increase of 25.25%. Executed trades for T.bills increased by 11.51% whilst FGN bonds recorded a decline of 31.91%