NIGERIA Law and Practice Contributed by: Fred Onuobia, Michelle Chikezie, Chima Uzochukwu-Obi and Anita Ebbi, G Elias
• the modification, assignment or termination of an agreement or contract for the sale or purchase of a derivatives contract or product, however described; and • the legal entity identifier code (a 20-character, alpha-numeric code issued by accredited issuing organisations that are duly endorsed by the Global Legal Entity Identifier Foundation). Further, in the case of a currency swap involving a Nigerian counterparty, the parties must adhere to the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995 (FEMMPA) and the CBN Foreign Exchange Manual 2018 (the “Forex Manual”). The FEMMPA and the Forex Manual contain extensive provisions regulating dealings in FX in the Nigerian FX market. Specifically, the FEMMPA and Forex Manual provide that where a person imports foreign currency into Nigeria that is intended to be converted into naira, such person must obtain an electronic certificate of capital importation (eCCI). An eCCI is a dematerialised certificate issued by an authorised dealer to a person who imports foreign capital into Nigeria, where such foreign capital is converted into naira. The purpose of an eCCI is to guarantee the holder of the eCCI unre - stricted transferability of funds through an authorised dealer in freely convertible currency. 2.3 Forwards Additional requirements may apply where an exchange such as FMDQ Clear is engaged as a CCP for the forward transaction or where the forward contract is standardised and traded on the exchange. The Deriv - atives Trading Rules provide that all standardised OTC derivatives contracts shall be traded on an exchange and further state that the SEC must issue guidelines on standardised OTC derivatives contracts from time to time (paragraph 6 (2)(3)). By way of example, FMDQ has a set of rules that apply to cleared naira-settled non-deliverable forwards, including the requirement of adequate eCCIs for the transaction and contingent eCCIs to deal with any contingent FX risks. Also, as noted in 1.1 Overview of Derivatives Markets , the Interbank FX Market Guidelines permit authorised dealers to offer naira-settled non-deliverable OTC FX futures. This is also provided for under the FX Deriva - tives and Modalities for CBN FX Forwards Guidelines
and the FX Derivatives Guidelines, which both provide that the maximum tenor allowed for FX forwards (and by implication FX swaps and cross-currency interest rate swaps) is five years but authorised dealers may seek specific approval for longer tenors. Naira-settled non-deliverable forwards (OTC FX futures) are traded on FMDQ. Naira-settled non-deliverable FX forwards have been used as tools to hedge against the volatil - ity in the exchange rate of the naira with other major currencies. 2.4 Listed v Over-the-Counter In Nigeria, there are different requirements for exchange-traded derivatives and OTC derivatives. The requirements for exchange-traded derivatives are primarily set out in the Derivatives Trading Rules and the respective derivatives rules introduced by various exchanges such as the NGX and FMDQ. The Deriva - tives Trading Rules (paragraph 3 (1)) provide that the approval of the SEC must be sought and obtained prior to the introduction of any exchange-traded deriv - atives contract. All exchange-traded derivatives con - tracts are required to be registered with the SEC. An application for registration of a contract must be filed with the SEC by or on behalf of an exchange, along with the relevant SEC form and an information memo - randum detailing the specifications of the contract. The Derivatives Trading Rules provide that exchange- traded derivatives can only be traded on exchanges registered or recognised by the SEC. These exchang - es are required to develop rules for the derivatives market such as the NGX’s Rulebook and FMDQ’s Derivatives Market Rules. Furthermore, the Deriva - tives Trading Rules require that all exchange-traded derivatives contracts must be cleared by a CCP regis - tered or recognised by the SEC. The rules also contain requirements for market participants and provisions on position limits to prevent participants and clients from holding positions large enough to control and/or manipulate the underlying asset. In Nigeria, there is no robust legal framework regulat - ing OTC derivatives contracts. The OTC derivatives contracts are usually governed by the terms of the contracts themselves. However, as earlier stated, the Derivatives Trading Rules require standardised OTC derivatives contracts to be traded on an exchange.
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