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Capital market needs market makers

By on April 21, 2011

The absence of market makers is stifling the growth and efficiency of the Nigerian capital market.

 

 

New chief executive officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, has promised to reverse this trend by working with the capital market community to allow market makers play their role effectively.

Market makers are wholesale operators who create liquidity in the stock market by either buying shares when there is a glut, or selling shares when there is scarcity.

Speaking at the monthly breakfast meeting of the Nigeria South Africa Chamber of Commerce yesterday in Lagos, Mr Onyema said he would provide a level playing field for participants to operate within the rules.

“One of the things I have observed is that 20 per cent of the top securities account for about 80 per cent of the market,” he said.

He said the capital market was in need of market makers that would help to deepen it and improve liquidity.

Operational efficiency

“We will look at operational efficiency so that when you want to move a large chunk of stocks or bonds, you can do that easily without impacting on the price of the security. My vision is to position the Nigerian market as the gateway to the African frontier market,” Mr Onyema further said.

The Securities and Exchange Commission (SEC) in 2008 approved five brokerage houses to act as market makers. These include Vetiva Capital Limited; Value Capital Limited; Afrinvest Plc; Diamond Capital; Financial Market Limited; and Chapel Hill Dunham.

Since then, there has been no impact due to the market downturn and the absence of clear operational guidelines.

Mr Onyema said the absence of market makers was affecting market liquidity.

“How do we make sure that securities have a standing bid and offer at any point in time? How do we get market makers that have the right depth and knowledge to provide liquidity in our market place? That is what we are looking at right now,” he said.

The chief executive officer, who assumed office a fortnight ago, said his desire is to build the Nigerian capital market to be comparable to the best in the world in terms of product offerings, adding that his focus would be to encourage telecommunication and oil and gas firms to list on the Exchange.

According to him, apart from attracting new issues, there is also the need to create a deep and liquid market.

“Government would need to put in place policies that would attract investors. We would work with government to make investment friendly policies,” he said.

Business decision

President of the Chartered Institute of Stockbrokers, Michael Itegboje, said the issue of market maker status is a business decision that firms that have the capacity would have to make on their own.

According to him, it is not enough for SEC to appoint firms as market makers without the enabling capacity to perform that role.

“For this market to develop, it needs market makers but they need funds. SEC approved market makers, where are they? It is a business decision you have to take. Nobody can force you to be a market maker.

“You have to take that business decision and if you find out that you can’t, you have to leave,” Mr Itegboje said.

Source : 234next