CBN Bars Banks From Unauthorised Commercial Papers Deals | Independent Newspapers Limited
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CBN Bars Banks From Unauthorised Commercial Papers Deals

CBN Resists Political Pressure, Retains Rates
Posted: Jul 18, 2016 at 4:21 pm   /   by   /   comments (0)

Bamidele Ogunwusi, Lagos

In continuation of its efforts to deepen the financial market, the Central Bank of Nigeria (CBN) has barred Deposit Money Banks (DMBs) and Discount Houses from dealing in Commercial Papers (CPs) not registered on authorised exchanges.

In a letter to DMBs and Discount Houses posted on its website yesterday, the apex bank also announced that it had cleared FMDQ OTC Securities Exchange for the quotation of CPs in the country.

The regulator stated that following the new directive, which came into effect on Monday, July 11, “banks are prohibited from transacting in CPs in any capacity whatsoever, including but not limited to as Issuer; Guarantor; Issuing, Placing, Paying and Collecting Agent (IPPCA), Collecting and Paying Agent (CPA), from the effective date.”

The CBN also disclosed that FMDQ OTC Securities Exchange was cleared for the quotation of CPs because the company’s quotation rules had already received its (CBN’s) approval.

According to the apex bank, DMBs and Discount Houses would be, “updated on subsequent clearance of additional exchanges from time to time.”

It would be recalled that the CBN had in November 2009 issued guidelines to banks on the issuance and treatment of Bankers Acceptances (BA) and CPs.

The guidelines defined a CP as, “An unconditional promise by a person to pay to the order of another person a certain sum at a future date. Such an instrument may or may not carry the bank’s guarantee.

“Where the bank guarantees the CP to make it more marketable in the money market, the instrument acquires the force of a BA and the bank incurs a contingent liability.

Where the CP is not secured or guaranteed by the bank (clean CP), it needs not be reported as a contingent liability,” the CBN stated.

Similarly, the guidelines defined a BA as, “a draft drawn on and accepted by a bank, unconditionally ordering payment of a certain sum of money at a specified time in the future to the order of a designated party.

“Since the instrument is negotiable, title to it is transferred by endorsement. It is a marketable instrument and allows a bank to finance its customers without necessarily utilising its loanable funds.

Instead, funds are provided by investors who are willing to purchase these obligations on a discounted basis.”