Archive for the 'Liquidity' Category
March 4th, 2013 by Tom Minney
The International Organization of Securities Commissions (www.iosco.org) published today (4 March) a report on liquidity risk management for collective investment schemes (CIS). This aims to make sure in particular that open-ended funds (where people can sell their units back to the fund when they want their money back) can meet their obligations for redemptions and other liabilities.
Liquidity has been a major preoccupation for regulators in many financial industries since the outbreak of the global financial crisis. But discussions have mostly focused on liquidity in banking.
Today’s report is Principles of Liquidity Risk Management for Collective Investment Schemes and contains principles against which both the industry and regulators can assess the quality of regulation and industry practices. Good liquidity risk management is key in correct operation of a CIS.
The principles are structured according to the time frame of a CIS’s life: first principles to be considered in the design (pre-launch) phase of a CIS; then principles that should form part of the day-to-day liquidity risk management process. When industry is implementing the principles, they will have to rewrite (“transpose”) them while taking into account the local regulatory framework
IOSCO had previously published (Jan 2012) a report on Principles on Suspensions of Redemptions in Collective Investment Schemes which covers exceptional circumstances where a liquidity problem may lead a CIS to temporarily suspend all investor redemptions.
IOSCO is the leading international policy forum for securities regulators and is the global standard setter for securities regulation. The organization’s membership regulates more than 95% of the world’s securities markets in 115 jurisdictions and it continues to expand. Its Board is the governing and standard-setting body and is made up of 32 securities regulators and chaired by Masamichi Kono, Vice Commissioner for International Affairs at the Financial Services Agency of Japan (JFSA). Members are the securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Nigeria, Ontario, Pakistan, Portugal, Quebec, Romania, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, Turkey, United Kingdom and the United States.
September 18th, 2012 by Tom Minney
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.
April 21st, 2012 by Tom Minney
The Committee of SADC Stock Exchanges (CoSSE) has launched a website as part of a drive to create more liquidity in the southern African stock exchanges through better data and visibility for the exchanges. The new website (www.cossesadc.org) was launched on 19 April.
CoSSE has 10 members: the exchanges of Botswana, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. It was established in 1997 and is a collective and co-operative body of the various stock exchanges in the Southern African Development Community (SADC). It forms part of SADC structures as it has a formal status under the SADC Finance and Investment Protocol (FIP). The objectives are:
- To improve the operational, regulatory and technical requirement underpinnings and capabilities of SADC exchanges
- To make the securities markets of SADC exchanges more attractive to both regional and international investors
- To increase market liquidity and enhance trading in various securities and financial instruments
- To promote the development of efficient, fair and transparent securities markets within the SADC region
- To encourage the transfer of securities markets’ intellectual capital and technical expertise among the member countries of CoSSE
- To encourage interaction among market participants
- To encourage the development of a harmonised securities market environment within the SADC region
- To maximise co-operation among CoSSE members.
The new website is hosted and maintained by a leading South African data vendor I-Net Bridge. The company has been extending its footprint into Africa to provide investors with accurate, timely and reliable African financial data. Where it is available, the firm provides information from over 18 African countries, including equity and index data from the exchanges, a range of African economic time series, annual company financial statements and company news through their various professional and corporate-solutions products. Stephen Phillips of I-NET Bridge says: “It is I-Net Bridge’s goal to become the preferred supplier of African content globally and assist in generating interest and liquidity to all African exchanges”.
The new chair of CoSSE is Beatrice Nkanza, chair of the Lusaka Stock Exchange, taking over after the term of Emmanuel Munyukwi, CEO of the Zimbabwe bourse. Gabriel Kitua, CEO of the Dar es Salaam SE, was elected vice-chair. The meeting, held at the JSE Ltd in Johannesburg, also discussed business plans for regional cooperation.
November 3rd, 2011 by Tom Minney
Reuters newsagency has put together stories on issuers’ and investors’ difficulties with African stock markets. These include lack of liquidity and sinking currencies. It notes that African companies are increasingly dual listing on international stock exchanges.
“Liquidity: the scourge of African stock pickers” quotes a range of institutional investors complaining that liquidity is a major constraint on markets such as Malawi Stock Exchange. According to the article: “Poor but fast-growing, Malawi and other sub-Saharan African countries would offer huge opportunities to international equity investors – if it weren’t for the liquidity scourge. Markets across the continent are hampered by a lack of liquidity, making it nearly impossible to take stakes in all but the biggest firms. “With the exception of South Africa, we feel all sub-Saharan African (markets) are illiquid,” said Ronak Gadhia, Africa equities research analyst at London-based frontier markets specialist Exotix. “Most of our investors are unable to invest outside the big 2 markets, and even then their investable universe is usually the largest 5-10 stocks,” he said, referring to the Nigerian Stock Exchange and Kenya’s Nairobi Securities Exchange, the two biggest markets outside Johannesburg.
It notes that Sonatel, the giant of the BRVM West African regional securities exchange, is concerned about liquidity on that market and thinking about a secondary listing. An earlier story said the pressure comes from investors.
“Africa’s growing firms shun Jo’burg for London” suggests that even when companies are thinking about dual-listing, they head to the London Stock Exchange or AIM market and don’t consider Johannesburg. The article quotes Zambeef executive director Yusuf Koya: “It was a tough decision. A key factor in the decision process was London’s reputation as the world’s financial centre, which allows us to access a potentially wider range of investors and liquidity.”
According to the article: “A total of 104 African companies are listed on the London exchange, with the majority on AIM. The combined market value of African companies listed in London is now bigger than every African exchange except Johannesburg. Just under $2.1 billion was raised by African companies on the London bourse in 19 transactions in 2010, representing about 90 percent of all equity capital raised by Africa-focused companies in 2010, said Ibukun Adebayo, the LSE’s head of equity primary markets. Dual listings are critical for companies that outgrow their home exchanges, where thin liquidity keeps large investors out. Big bourses such as London and Johannesburg also boast tougher disclosure requirements, reassuring investors concerned about Africa’s corporate governance.”
It also cites bankers that London-based investors tend to have a bigger appetite for emerging market assets than their South African counterparts and quotes a private equity manager: “South African investors don’t understand Africa risk in the same way UK investors do.” It also suggests London may be an easier sell to international investors unfamiliar with Johannesburg. Nicky Newton-King, incoming CEO of South Africa’s JSE Ltd, says Johannesburg offers a world-class standard of disclosure for a lower price and less hassle than London: “You can come to the JSE, you can raise the money here, and your shares will be traded in a very liquid environment, a very respected environment. Without going through the costs and the hoops of listing in London, but with exactly the same standards.”
African investment institutions are just starting to rise, it could be a great time to heed the call from ASEA Chairman Sunil Benimadhu for African securities exchanges to find ways to get more liquid. SADC Stock Exchanges already have a workable model, but what will cause anyone to initiate the change to move onto the next level before many more firms move activity to London , New York or elsewhere?
August 10th, 2011 by Tom Minney
South Africa’s Johannesburg Stock Exchange (www.jse.co.za) says that a record number of trades were executed on the exchange today (10 August). The JSE is the biggest securities market in Africa and its new trading record is 230,797 trades, valued at more than R29 billion ($4 bn).
The JSE FTSE All Share index rose 267 points to close at 28,658. The volume of shares traded was 531.5 million shares), according to a press release.
Head of Equities Trade, Leanne Parsons, said: “The JSE’s equity market moved sharply today, after yesterday’s holiday and following big moves on world markets. Our new record, of 230,797 trades, marks a 12% increase on our previous record of 205,784 transactions. That is a significant jump.”