Although market making activities began on the Nigerian Stock Exchange last week, operators have asked regulators to do more to build investor confidence, UDEME EKWERE writes.

After months of postponement, market making activities finally began on the Nigerian Stock Exchange last Tuesday.

The idea of market making had first come up in the Nigerian market as a result of the huge losses recorded in the market following the meltdown in 2008 and 2009, where major stocks lost a greater part of their value.

A market maker is a dealing firm that maintains firm bid and offer prices in a given security by standing ready to buy or sell that security.

On his resumption as the Chief Executive Officer of the NSE, Mr. Oscar Onyema, again re-embarked upon the idea of market making as part of his agenda to set the market on the part of growth after years of consistent decline in the market.

According to him, the NSE was re-embarking on the project of getting market makers as one of the major strategies aimed at increasing investor confidence, deepening the market and addressing the lack of liquidity in the market.

The Exchange had, thereafter, selected 10 brokerage firms to act as market makers. The companies, as announced by the NSE, were Stanbic IBTC; Renaissance Capital; Future View Securities; Vetiva Capital; ESS/DunnLoren Merrifield; WSTC; Capital Bancorp; FBN Securities; Greenwich Securities and CSL Stockbrokers.

Speaking after the selection, Onyema said, “This is a great milestone and a major step in the direction of turning the market round to have liquidity and depth back into the market. We will continue to move forward on this.

“The companies selected went through a very rigorous process and met the minimum net capital requirement of N570m, we also examined their compliance history and looked into their operational capabilities including their technology and processes”.

He added that the selected firms were taken through seriesof training, saying that their primary obligation as market makers was to make a two-way price in each of the stocks in which they might make markets.

While commending the Exchange on the initiative and the commencement of the process, analysts have said that it has brought a lot of positive improvement in activities in the equities market.

They added that, for instance, the major market indicators had recorded significant improvement in the weeks prior to, and following the commencement of the market making in the equities market.

At the close of equity trading last Thursday, the NSE All-Share Index rose by 0.91 per cent or 232.92 basis points to 25,875.31 points up from 25,642.39 points the preceding day.

Similarly, the market capitalisation of the listed equities gained N76tn or 0.9 per cent from N8.163tn on Wednesday to N8.239tn. The market value rose consecutively for fourth consecutive days during the week.

The market indicators also recorded a year-to-date value of 23.69 per cent, owing to the market making activities as well as stronger currency.

To analysts, this has led the NSE to become Africa’s third best performing index, as MSCI equity indices showed.

However, experts warned that the process needed to be carried out with transparency in order to ensure that investor-confidence was built in the market.

They warned that the improvement the market recorded in the last two months might dwindle fast if the regulators failed to ensure that investor interest was maintained in the market.

The Managind Director, Proshare Nigeria Limited, Mr. Olufemi Awoyemi, noted that as a process, market making would help to bring more life into the equities market. But he warned that it was essential that the process was handled with caution.

He also said that the primary focus of the regulators in all their activities should be the investors and the building of investor confidence.

He said, “Market-making is a good initiative with so many prospects if the operators and market participants can stick to the principles that will make it function, and we expect operators to play by the rules.

“To this regard, a high level of market efficiency and transparency will help to lubricate the effectiveness and impact of the market-making in boosting market activities further, which will of course stage the full recovery process of the Nigerian stock exchange.

“In addition, the market surveillance obligation needs to be on point at this time to checkmate smart practices such as naked shorting.”

Awoyemi noted that apart from the liquidity in terms of funds that this would bring to the market, it would also inject life into market activities.

“We expect this initiative to create sustainable market activities soon while it will naturally create more avenues for huge revenue to both stock-owners and traders on the bourse rather than the usual boring buy and sell,” he stated.

He said that government at all levels had a huge role to play in ensuring that the process played out well and that even more investors were attracted to the market. This, he adds, would bring more appreciation to the market.

He said, “We expect cooperation from the government with policies that will strengthen the course and lead to balanced monetary policies, which will consequently encourage investment commitment towards equity market.

“Government is expected to quickly look into grey areas like persisted weak funding and power play in the market which are likely to be the major obstacles to effectiveness of this initiative. The principle of fair play, fair value and transparency need to be treated and respected as king in the market.”

Awoyemi added that adequate enlightenment of investors, particularly the retail end should be taken very seriously.

The Managing Director, Crane Securities Limited, Mr. Mike Eze, said it was essential for operators to work together with full cooperation and compliance to ensure best practice of corporate governance, as this was highly necessary to ensure integrity of the market.

He added that some of the issues that seemed to have been put on hold by the government should again be brought to the front-burner to ensure increased depth in the market.

According to him, the issue of a forbearance package which was part of government’s promise to boost the market has yet to be pursued, adding that if this was done, there would be increased liquidity in the market.

He said, “Since the bulls are back, and activities seem to be on the positive side once again, we believe that government should try to implement the forbearance package policy which was agreed upon between government, the regulators and market operators.

“Also, the issue of the intervention fund to bail out the stock market is still on hold, and so I think the intervention fund which brokers have been clamouring for, should be looked into by government.

“Intervention fund for bailing out the stock market should be released at this time now that the market has returned to a bullish state so that it can be sustained.”

The Chief Executive Officer, Lambeth Trust and Investment Limited, Mr. David Adonri, admitted that the listing of highly capitalised stocks had had full participation in the market, stressing that it would help to deepen the market.

He said, “The recent bullish rally has been sustained for more than two weeks, and for the first time since 2010, the All-Share Index crossed 25,000 points. Positive developments in the macro economy together with increased confidence engendered by proposed commencement of market making have heightened demand for equities, and with the commencement of market making, this kind of volatility which could create an asset bubble will be checked.

“However, recent events have once more exposed the low absorptive capacity of the equities market. For sustainable stability, the market needs to be deepened with more quality highly capitalised securities.”

Source: Punch/Udeme Ekwere