Nigerian Stock Exchange launches market-making today

Today (18 Sept) the Nigerian Stock Exchange is to launch its market-making programme, according to its press release. This will be a hybrid process, with market makers offering 2-way (buy-sell) price quotes in selected securities and a continuation of the current process in which licensed broker/dealers of the NSE submit orders.

The launch follows drawing up rules and operational guidelines. Role-players such as market makers, securities lenders, short sellers, settlement banks, pension fund administrators, insurance companies and listed companies have been trained, including in an 11 Sept workshop.

According to Bloomberg, citing stockbroker Securities Africa Ltd, price bandwidth movement has been increased to 10% for stocks that have market makers assigned to them, instead of the current 5%. Bloomberg cites David Adonri, CEO of Lagos-based Lambeth Trust and Investment Co: “Brokers have been informed of the new limit which is intended to make market making function properly, as widening the price band will enable market makers to recoup investments in stocks, cover risk and remain in business.”

Olumide Lala, the Head, Transformation and Change of the NSE, said that market makers will provide 2-way quotes (buy and sell prices) for the securities that they are making markets on. They will be able to leverage the securities lending process and borrow to settle “buy order imbalances” from customers. Investors will be able to use the securities lending processes to earn returns on their “idle” stocks whilst contributing significantly to market liquidity and price efficiency through legitimate investment activity in covered short selling.

The Nigerian bourse announced the names of the 10 broker/dealer firms selected as market makers on the trading floor of the NSE at the start of April 2012, after a rigorous selection process. Oscar Onyema, CEO of the NSE, described it as a major landmark in enhancing the liquidity and depth of the second largest market in sub-Saharan Africa: “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 10 stock-broking firms selected from a list of 20 that applied were: Stanbic IBTC, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/DunnLoren Merrifield, WSTC, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers.

According to Onyema: “The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million ($3.6m). We also examined their compliance history and looked into their operational capabilities including their technology and processes. The selected firms were taken through trainings, debated the appropriate market structure to be used and The Exchange further went through the approval of the Securities and Exchange Commission (SEC) in the selection process.” The April announcement also included the selection of a basket of quoted companies in which the financial intermediaries would provide the desired level of liquidity via a blind draw.

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