NIGERIA Law and Practice Contributed by: Fred Onuobia, Michelle Chikezie, Chima Uzochukwu-Obi and Anita Ebbi, G Elias
Futures. The approved hedging products under the FX Derivatives and Modalities for CBN FX Forwards Guidelines are FX options, forwards (outright and non- deliverable), FX swaps, and cross-currency interest rate swaps. The FX Derivatives Guidelines supersede the FX Derivatives and Modalities for CBN FX For - wards Guidelines where there is a conflict between the former and the latter. Self-regulatory organisations, such as securities exchanges, also play a crucial role in the regulation of the Nigerian derivatives markets. The Nigerian Exchange Limited or NGX (formerly the Nigerian Stock Exchange) and the FMDQ (Financial Market Dealers Quotation) Securities Exchange (FMDQ) both provide platforms for the trading and settlement of derivatives contracts. The NGX, in 2019, introduced its Rulebook on the Derivatives Market (the “NGX Rulebook”). The NGX Rulebook has sundry provisions for the regula - tion of derivatives trading and settlement on the NGX trading platform. FMDQ introduced similar rules for the trading of derivatives on its platform in 2021. Both the NGX Rulebook and FMDQ’s Derivative Market Rules were approved by the SEC. Amendments to FMDQ’s Derivates Market Rules were approved by the SEC on 7 May 2024. Similar to securities exchanges, commodity exchang - es in Nigeria (such as the Nigeria Commodity Exchange and Africa Exchange (AFEX)) also have rules that regu - late the trading and settlement of commodities deriva - tives on their respective platforms. Notably, legislation enacted by the National Assem - bly (Nigeria’s federal Parliament) contains provisions that feature frequently in derivatives transactions and directly impact the trading and settlement of deriva - tives. For example, the Companies and Allied Matters Act 2020 (as amended) (CAMA) and the Banks and Other Financial Institutions Act 2020 (BOFIA) both contain provisions on netting of payments, which directly affect how derivatives transactions involving Nigerian counterparties are settled. 1.2 Historical Trends and Looking Forwards Although Nigeria exports crude oil, it is a net importer of food, machinery, goods and services. Consider - able FX is required to satisfy these needs. In recent
times, low crude oil production output and falling FX revenues from crude oil exports created a vola - tile FX market. This state of affairs necessitated the development of derivatives markets and products for financial institutions and other corporates to hedge foreign exchange risks and improve access to FX. The uncertainty regarding the enforceability or oth - erwise in Nigeria of netting provisions in derivatives contracts led to the enactment of netting provisions in both CAMA and BOFIA in 2020. Per FMDQ’s finan - cial markets monthly report for May 2025, the total turnover in the FX derivatives segment of FMDQ was NGN2.85 trillion (approximately USD1.8 billion), rep - resenting a 12% increase from June 2024. One of the most significant catalysts for the devel - opment of the Nigerian derivatives market in recent times was the floating of the Nigerian naira by the CBN in June 2023 and the consequent meteoric rise of the exchange rate between the Nigerian naira and other major currencies. This resulted in substantial FX losses for many companies with FX obligations. In response, these companies increasingly turned to derivatives contracts (primarily FX forwards and swaps) as a means of hedging against the volatility of FX rates. There has been a marked increase in the use of FX forwards contracts and currency swaps by Nigerian companies. These instruments allow businesses to lock in exchange (and interest) rates for future trans - actions, thereby mitigating the risk associated with fluctuating FX rates. Although the exchange rate of the Naira to major cur - rencies appears to have achieved some level of stabil - ity, the upward trend in the use of derivatives in Nigeria is expected to continue, given the Naira’s track record of volatility and the need to manage FX risk more effectively in the changing economic environment. As companies increasingly recognise the benefits of these financial instruments, the derivatives market is likely to expand both in size and sophistication. Moreover, regulatory support and market infrastruc - ture improvements will play a crucial role in foster - ing this development. The increased activity in the Nigerian derivatives market is expected to lead to a
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