Securities lending, which is the act of loaning a stock, derivative, other securities to an investor or firm is an integral part of the market making programme, which the Nigerian Stock Exchange (NSE) rolled out in September 2012.
When the market making programme started, the Securities and Exchange Commission (SEC) registered Stanbic IBTC Bank Plc, United Bank of Africa Plc, First Bank Plc and Capital Bancorp Plc as securities lending agents(SLA). But the securities lending has not been taking place due to some outstanding issues.
However, sources close the exchange told THISDAY last week that the SLAs’ agreements and proposals were currently being reviewed by the Asset Management Corporation of Nigeria (AMCON), which is one of the major prospective securities lenders.
It was gathered that AMCON, which has acquired many securities due to its bailout package in the market, is to make some of its securities holdings available for lending, as part of its effort to enhance liquidity in the stock market.
“As you may know, the management of the NSE remains committed to its plan of introducing securities lending in the nation’s capital market. And I can tell you that some progress has been recorded in the drive to kick-off the programme. The SLAs agreements/ proposals are currently being reviewed by AMCON. The SLAs themselves will soon commence confidence test in securities lending in a couple of weeks,” the source said.
The market making programme was introduced by the exchange to increase liquidity and revive investors’ confidence. The primary market making programme was rolled-out in mid-September 2012, with significant impact on trading volumes.
Data released by the NSE recently showed that for the securities for which market makers were appointed, average daily volume traded computed over the three months prior to the market making programme (June 2012 to August 2012) compared with the average daily volume traded of the first three months of 2013 (Jan to Mar 2013) has increased from 229.5 million shares to 322.9 million shares which represents a 40.65 per cent increase.
Similarly, average daily value increased from N1.840 billion to N3.425 billion, an increase of about 86.2 per cent. Compared to the similar three-month period for 2012 (Jan 2012 to Mar 2012), the increase of daily average volume traded and value traded are 38.87 per cent and 76.42 per cent respectively. This shows the positive impact of the market making on liquidity and market performance. At the end of the primary marketing making roll-out period, 13 supplementary market makers (SMMs) were last April appointed to complement the effort of the primary market makers (PMMs).