CBN READS RIOT ACT ON TRANSACTION SETTLEMENT

The Central Bank of Nigeria (CBN) yesterday warned that any authorised dealer that
defaults in the settlement of any auction or 2-way quote with the CBN in the financial
market would be duly punished. The punishment includes suspension from al
auctions as well as from its discount window. The central bank stated this in a circular
to all authorised dealers titled: “Amendment of S4 Business Rules and Guidelines,”
dated February 1, 2017, that was signed by its Director, Financial Markets
Departments, Dr. Alvan Ikoku. Specifically, the amendment was with reference to
Section 10.1 of the S4 Business Rules and Guidelines. The directive was with
immediate effect. It stated: “Any auction of 2-way quote with the CBN must be
settled. If it is on queue, it shall be given highest priority and when it fails to settle, the
system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by
collateral to settle the transaction. Where there are no securities, the allotment shall be
cancelled and the defaulted
suspended from all auctions for eight weeks from the date of default. “ILF shall be
bought back or converted to Standing Lending Facilities (SLF) by the participant by
the close of business day, failing which it shall be automatically converted to SLF at
the prevailing SLF rate plus 500 basis points. “If any SLF is not repurchased by the
participant bank by the next business day, such participants shall not be eligible to
access the discount window until such outstanding obligation is settled in accordance
with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under
the CBN Standing Facilities.” Furthermore, the central bank directed that henceforth,
all SLFs must be bought back latest by 10am on the maturity date, adding that” failing
which, the encumbered securities would be automatically rediscounted.”