CBN restores retail access to OMO

The Central Bank of Nigeria (CBN) has reopened access to Open Market Operations (OMO) securities for individuals, companies, and non-bank financial institutions, giving Nigerians an additional option for investing in short-term securities.

The decision reverses a restriction implemented in October 2019, when the CBN prohibited local individuals and corporations from participating in OMO auctions. At the time, the measure was designed to reduce pressure on OMO auctions and restore the instrument to its primary role as a monetary-policy tool. The restriction had left OMO participation largely to banks and foreign portfolio investors, and the CBN framed the move partly as a way to direct credit toward businesses and households rather than high-yield central bank paper.

Under the new arrangement, individuals and companies can participate in both the primary and secondary OMO markets through Deposit Money Banks. The reopening comes amid strong investor demand for short-term fixed-income investments.

Strong demand at recent auctions

In a recent OMO auction, investors submitted approximately ₦4.93 trillion in bids for the ₦600 billion initially offered by the CBN. The 103-day OMO bill cleared at a rate of 20.39%, while the 138-day bill cleared at 20.01%. The CBN ultimately allotted around ₦2.60 trillion.

For investors looking to keep their money invested for a few months, returns above 20% place OMO among the higher-yielding short-term options on the market. The reopening also raises a broader question: what exactly is OMO, and what does its return to retail investors signify for Nigeria's expanding digital investment industry?

What OMO is and how it works

OMO stands for Open Market Operations. In simple terms, it is a method used by the CBN to control the amount of money circulating within the banking system. When the CBN wants to withdraw excess money from the financial system, it sells OMO bills. Investors purchase these securities, and the money used for the purchase is effectively removed from circulation for the duration of the investment.

The practice is not unique to Nigeria. Open market operations are among the most widely used tools of central banking, employed by institutions such as the US Federal Reserve and the European Central Bank to manage liquidity, though the specific instruments vary across jurisdictions.

The CBN is both the issuer of OMO bills and the institution that uses them as a monetary-policy tool. This distinguishes OMO from Treasury bills, even though the two may appear similar to an ordinary investor.

Treasury bills are issued by the Federal Government to raise funds for government financing, whereas OMO bills are issued by the CBN primarily to manage liquidity and support monetary-policy objectives. The CBN has clarified that OMO and Treasury bills serve different purposes, have different issuers, and possess different structures.

The distinction is significant because the CBN does not issue OMO bills simply when it needs to raise money for government spending; it uses the instrument based on prevailing conditions in the financial system.

For investors, the concept is straightforward. Someone with ₦1 million that is not needed immediately can invest it in an eligible short-term security, hold it until maturity, and receive the agreed-upon return.

Understanding the yields

The high yields on recent OMO bills are attracting retail investors. In the recent auction, a 103-day bill had a rate of 20.39% and a 138-day bill a rate of 20.01%. However, these figures are annualised yields, meaning that actual profits depend on how much is invested and for how long. An investor who puts ₦1 million into a bill yielding 20% for roughly 100 days will not earn ₦200,000; the return is calculated on the specific investment duration.

The elevated rates form part of a wider tightening cycle. The CBN's Monetary Policy Committee raised its benchmark interest rate from 18% in early 2023 to 27.50% by November 2024 and has kept it around that level since, amid an inflation surge that pushed Nigeria's headline rate above 30% in 2024 — its highest level in decades. Short-term rates across the market, including on Treasury bills and money-market instruments, remain unusually high by historical standards; Nigerian Treasury bills yielded in the single digits as recently as 2021.

It is also important for investors to compare OMO with other investment options rather than simply choosing the highest rate on display. Treasury bills are a significant alternative: during an August auction, ₦4.4 trillion was bid for the ₦700 billion available. Rates were 16.30% for a 91-day bill, 16.50% for a 182-day bill, and 17.59% for a 364-day bill, leaving OMO rates notably higher.

Money market funds that invest in short-term securities present a further alternative. Some of these funds are generating returns around or above 18%, with some exceeding 20% this year. OMO is therefore entering a market in which Nigerians already have multiple ways to earn short-term returns.

The role of digital investment platforms

Platforms such as i-invest have made it easy for users to access Treasury bills and a range of fixed-income products directly from their phones. The platform started with Treasury bills and stocks but has since expanded to include mutual funds, ETFs, and other financial services.

Similarly, Cowrywise enables users to automate their savings and invest in mutual funds through its digital platform, operating under a licence from the Securities and Exchange Commission (SEC). Other apps, including Bamboo and Risevest, further facilitate investment by putting financial markets at users' fingertips.

With OMO reopened to individuals, fintech companies and digital investment platforms might explore the new opportunity. However, not all fintech apps can immediately offer OMO bills. These securities function within a regulated financial market, and individual participation is conducted through Deposit Money Banks. Fintechs therefore need the right regulatory framework and partnerships to integrate OMO access into their services.

Platforms that already have ties with banks or licensed market operators may hold a competitive edge. Instead of requiring users to understand how OMO auctions work, these platforms could streamline the process by showing available tenors, explaining yields, displaying minimum investment amounts, handling applications, and allowing customers to track their investments until maturity — an approach that mirrors what fintechs have already done successfully with other financial products.

Regulatory considerations

Fintechs must also adhere to regulatory requirements set by the SEC, which mandates that operators providing capital-market services be registered. For platforms entering OMO distribution, questions of regulation, custody, and investor protection will be crucial.

The resulting landscape is straightforward for the end user: a Nigerian investor can open an investment app and choose between a Treasury bill at roughly 17%, a money-market fund, or an OMO bill with a higher yield, comparing returns, risks, and liquidity with ease.

Choice, with conditions

The most significant change brought by the reopening is choice. Investors now have OMO as an option alongside Treasury bills and fixed deposits. A higher yield does not guarantee that OMO is the best choice for everyone; factors such as investment duration, access to funds before maturity, and fees must all be considered.

If OMO consistently offers better yields, it could shift competition in short-term investments, attracting more money and influencing future yields depending on the CBN's issuance strategy. Signals worth watching include the spread between OMO and Treasury-bill rates at subsequent auctions, how much of the oversubscribed demand the CBN chooses to allot, and which licensed platforms move first to offer retail OMO access.

For fintechs, the challenge is to simplify access to OMO as effectively as they have done with other financial services. If they succeed, OMO could become a familiar investment choice for Nigeria's retail investors.