CBN REVIEWS DISCOUNT WINDOW RESTRICTIONS AND OPEN MARKET OPERATION(OMO) PARTICIPATION FRAMEWORK

Introduction

The Central Bank of Nigeria (CBN) controls the money supply in the Banking system, determining the inflow and outflow of money in the public domain. The CBN uses various policies and frameworks to balance cash flow among the federal government (FG), Banking institutions, and the public, including the discount window and open market operations (OMO).  

To exercise this control, the CBN took steps to restrict Banking institutions from practices initially regarded as abusive and exploitative in the discount window and open market operations. However, in a turn of events, on the 12^th of August 2026, the CBN issued a circular reviewing the restrictions placed on Banking institutions concerning their access to and use of discount windows, as well as the restrictions on investors and corporate institutions participating in open market operations.  

This newsletter briefly explains the concept of discount windows and OMO and highlights the reviewed provisions and their implications for the Banking system and the public.  

Discount Window and OMO Participation Restrictions  

The discount window is a lending facility used by the CBN to administer loans to commercial Banks to manage short-term liquidity needs. Discount windows are usually short-term, have an interest rate depending on the type of loan transaction, and may require collateral from Banks. The CBN discount window includes the Standing Lending Facility (SLF), the Automated Repo Conversion (AREPO), the Funding for Liquidity Facility (FfLF), and the Tenored Repurchase Transactions (REPO). While, the Open Market Operation is a market-based instrument by which the CBN controls liquidity and money supply within the financial system through the purchase and sale of eligible securities.  

Prior to the review, the CBN, via Circular No. FMD/DIR/PUB/CIR/001/006 on Access to the Discount Window dated October 7, 2022, and Letter No. FMD/DIR/GEN/OGC/14/009 on Open Market Operations Auctions dated October 23, 2019, restricted authorised dealers from accessing the discount window in the following manner: 

1. Open market operations: Participants with successful bids at the Open Market Operations (OMO) auctions are to refrain from accessing the discount window on the auction date. The CBN also directed the restriction of individuals and domestic corporate bodies, including non-Bank financial institutions, from investing in OMO auctions in the primary and secondary markets.  

2. Government Securities: Participants with successful bids at the government securities auctions (e.g., Nigerian Treasury Bills (NTBs), Federal Government of Nigeria (FGN) Bonds and Sukuk), are not permitted to access the CBN discount window on the settlement date. Requests for SLF, FfLF and REPO on the settlement date will not be permitted. AREPO and conversion of Intraday Liquidity Facility (IDF) to FfLF on the settlement date, as well as running REPO shall attract a penal charge of five per cent (5.00%) flat on the allotment value.  

3. Foreign Exchange: Participants with successful foreign exchange bids and transactions are not to access the discount window on both auction and transaction settlement dates.  

CBN’s Review  

Upon review of existing market practices and developments in the foreign exchange, money, and fixed-income markets, the CBN has decided to lift the restrictions on the discount window in the following manner: 

1. Foreign Exchange (FX)Transactions: Successful participants in the Nigerian foreign exchange Market (NFEM), including the bids and transactions, can access the discount window with ease on both the auction and settlement dates.  

2. Government Securities: Successful participants at the primary government securities auction can access the CBN discount window on the settlement date. 

3. Tenored Repurchase (Repo) Transactions: The CBN lifted the suspension on tenored Repo operations, thereby approving tenors ranging from 4-90 days to support effective liquidity management, improve money market functioning and enhance monetary policy implementation. 

4. Open Market Operations: The OMO participation (primary and secondary markets) is open to eligible investors (individuals, corporates and non-Bank financial institutions) through Deposit Money Banks (DMBs). This means that eligible investors, although with no direct access to the CBN OMO, can participate through their DMBs to submit bids and settle transactions on behalf of their customers. Investors do not deal directly with the OMO  

Implications for the Banks and Individuals  

1. The review ensures that Banking institutions enjoy easy access to loan facilities in times of emergency financial constraint.  

2. The broader OMO access allows eligible domestic investors and corporates to participate in investments in CBN-issued securities through Deposit Money Banks. 

3. The CBN review gives commercial Banks more freedom to manage cash without losing access to short-term emergency loans. 

Conclusion 

The review reflects the CBN’s efforts to enhance liquidity management and improve the functioning of the foreign exchange, money, and fixed-income markets. Enhanced access to liquidity facilities may assist Banks in managing short-term funding pressures and supporting operational stability during periods of market stress. 

Amid the review, investors and Banking institutions should note that the restriction on successful participants in OMO auctions from discount windows on the same day remains. It should also be noted that the discount window operations (excluding OMO) apply only to authorised dealers, mainly Banking institutions.  

This newsletter is provided for general information purposes only and does not constitute legal, regulatory, or professional advice. While reasonable care has been taken in preparing this publication, readers are advised not to rely on its contents as a substitute for specific legal advice. Institutions and individuals are encouraged to consult their legal, compliance, or other professional advisers before acting on any information contained in this publication.