Market makers wonâââ€

By Udeme Ekwere

It seems the move by government and regulators to ease the bearish grip, and stabilise activities in the Nigerian capital market through the introduction of market markers may have suffered unexpected delays, as the Nigerian Stock Exchange has stated that the market makers would not commence operations without evidence of liquidity providers and licenses from the NSE.

The Director-General of the NSE, Prof. Ndi Okereke-Onyiuke, stated that all companies desirous of becoming market makers must demonstrate to the NSE that they are proficient in capital market activities and must provide evidence of a liquidity provider such as a bank, adding that without the provision of a liquidity provider, such companies would not be licensed as market makers.

Our correspondents, learnt, however, that many banks were not prepared for further exposure to the capital market due to huge losses they incurred last year from major loans gone bad and indirect trading in shares.

The losses were estimated to be up to N400bn and the Central Bank of Nigeria had to extend repayment window for some margin facilities by up to a year.

The Securities and Exchange Commission had announced that it had registered successful market makers from a list of firms that had applied for the position.

In November, the regulator announced three names of successful applicants, which were Chapel Hill Advisory Limited, Greenwich Trust Limited and Diamond Capital and Financial Market Limited, and in December two others; Vetiva Capital Limited and Value Capital Limited, bringing the total number to five.

This, they stated, was part of measures to increase liquidity and reverse the sustained bearish trend that had slashed the value of quoted equities by half in recent months.

However, the DG stated that the market makers cannot commence operations without appropriate license from the NSE.

According to her, “SEC does not licence anybody to practise in the market. They can only carry out researches into these companies, appoint them, and register them to do their businesses. The capital market belongs to the stock exchange, therefore, it is the only the NSE that can license companies to operate there, and so, the market makers cannot practise without license from the NSE.”

The DG stated that it had issued a criteria for licensing the market markers, and it seemed most of them were yet to meet the criteria, and therefore could not be licensed.

Among other things in the criteria, it was stated that “The company, wishing to be a market participant, or market maker, must have a minimum paid-up capital of N2bn, in addition to being able to maintain a minimum float of N10bn at all times.”

This seemed to negate statements credited to a few of the registered firms, which stated that they had enough capital base and funds to carry out the market making function.

“Also, a company cannot simultaneously act as a market maker and stockbroker/dealer; however, a subsidiary or associated company may be allowed to perform either of the functions.”

While disclosing that stockbroking firms on their own, did not have, and could not provide enough liquidity to operate as market makers, Okereke-Onyiuke stated that they would need a liquidity backer to be able to carry out that function.

Meanwhile, the President, Value Fronteira Limited, Mr. Martin Oluba, has said that market making could not solve the problems of the Nigerian capital market.

According to him, “It is absolutely unlikely that market-making can change the destiny of our equities market in any significant manner, as the conditions that would enable market-making arrangement to effectively resuscitate the market are not present to in any reasonable measure.”

In his opinion, the Nigerian equities market, had finally entered its final transition to a comatose state. -punchng
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