Monday, 10 June 2013

Tackling liquidity challenges in Nigeria’s capital market

Mr Oscar Onyema
The place of liquidity in the survival of any capital market cannot be over emphasised. This is why the issue has continued to occupy the front row in the scheme of things in the nation’s capital market.
This also stemmed from the fact that the importance of the capital market in any economy cannot be undermined and so, for Nigerian economy to achieve its full potential, there is the need for the capital market to be strong, sustainable and function very well.

At some point earlier in the year, the Chief Executive Officer (CEO) of the Nigerian Stock Exchange (NSE), Mr Oscar Onyema, called for a concerted effort to drive improvements in market participant experience.

This, he said, was necessary because according to him, “the Nigerian Capital market will continue to face challenges around liquidity and depth in 2013.

Tribune business gathered from the Exchange that a number of measures had been put in place by the management of the NSE to increase liquidity and investors’ confidence in the market.

One of such initiatives is the Market Making Programme where market makers are able to display a buy and a sell price in specific securities held in inventory, as licensed broker-dealers submit orders.
These quotes and orders interact in the Order Book to discover the best price for a security and ensure that at any given time, the market will be able to meet the demands of investors, in terms of inventory of stocks.

This programme was initially rolled-out in mid-September 2012 with the appointment of ten Primary Market Makers (PMMs).

Upon completion of the Primary Market Making (PMM) roll-out plan at the end of March 2013, Supplementary Market Makers were appointed to complement the PMMs’ role.

Thus, every listed stock on the NSE now has one Primary Market Maker and two Supplementary Market Makers (SMMs).

Two other key change initiatives that the Exchange has implemented to help boost liquidity in the market are: the Introduction of the X-Qual report back in November 2012, provision of insight into best execution of orders in the market and quality of execution that can be expected and the change in the price movement of the band limit for all equities from 5 per cent to 10 per cent.

A financial and capital market expert, Dr Wunmi Bewaji, speaking on the issue of liquidity, disclosed that Nigeria needed competition even at the level of the Exchange.

He faulted the idea of having a single exchange, saying it would not give a realistic view of the position of the market.

He said, “a clean market is only achievable when there is competition. I believe Nigeria’s economy is rich enough to sustain five strong exchanges”.

Bewaji posited that the issue of liquidity could not be tackled based on a single exchange because there was a need for comparison.

Liquidity, according to him, “is not limited to the amount of cash available to the market but how much people are able to trade in securities which does not depend on the availability of fund from banks’’

He further noted that the war chest of the market makers was still not deep enough, saying however that this had nothing to do with money but with products.

The analyst, while indicating that it was the investors that would drive the market, said that a lot of work still needed to be done at enhancing investors’ confidence in the market.

This he said was what would enhance liquidity and not funding, adding that the Nigerian Stock Exchange(NSE) should embark on a massive efforts at bringing back those investors that actually left the market in the aftermath of the crash in 2008.

He described what was currently happening at the Exchange as a situation of ‘the fewer the merrier’ saying many people were still not comfortable returning to the market.

“Investors’ confidence is still very low and the unfortunate thing is that both the NSE and SEC are so pre-occupied with the ‘big-boys’ club that they don’t even feel that they owe an explanation to people that lost their livelihood as a result of the crash”, he said.

“We should not be enthusiastic when few people are driving the market. A liquid market is where you have various strata of participants from all walks of life”, he also added.

Liquidity problem, according to him, arises when stagnant numbers of people are driving the market and this is related to the level of investors’ confidence.

On his own part, the President of the Chartered Institute of Stockbrokers (CIS), Mr Ariyo Olushekun, said securities lending needed to take off.

According to him, this will significantly help the market makers in doing their business. He added that awareness needed to be created to get more people into the market.

“The market right now has about 5 million investors. This is a small percentage of the population of about 160 million and so we should see how this can move to about 40 or 50 million”, he said.
Ariyo also called on the management of Nigerian Stock Exchange (NSE) to make the market attractive by ensuring that more companies were listed in order to improve on the depth of the market.

Source: Nigerian Tribune

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