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NSE: Liquidity stalls market makers’ take-off

By Peter Egwuatu
The inability of the five  registered market makers by the Securities and Exchange Commission (SEC) to meet the liquidity requirement of the Nigerian Stock Exchange (NSE) has stalled the commencement of their operation in the nation’s stock market.
The market makers are wholesale operators who ensure that there is liquidity in the stock market by either buying shares when there is a glut or selling shares when there is scarcity.

The decision to introduce market makers  into the Nigerian capital market was reached last August 2008 as part of the recovery measures to stem the persistent fall in the share prices at the stock market.
Vanguard gathered that non of the registered market makers has been able to meet the minimum float of  N10 billion required from operators at all times by the Exchange .

According to the requirement of the NSE, “ For a company to operate as market makers it must have a minimum paid up capital of N2. billion, in addition to being able to maintain a minimum float of N10 billion at all times”.
However, towards the end of last year 2008, the SEC registered five operators to perform the function of market makers as step forward to addressing  the market crisis which reached its peak in October 2008.  Greenwich Trust Limited, Chapel Hill Advisory Limited ,Diamond Capital & Financial Market Limited , Vetiva Capital Management  and Valueline Securities Limited  have been registered by SEC  as market makers.

According to guidelines of SEC, a market maker shall be a company duly registered with Corporate Affairs Commission and shall have a minimum paid-up capital of N2 billion.
They are required to all times maintain sufficient liquid assets to cover its current indebtedness.

Obligations of the market maker include: stabilisation of the market by ensuring continuous liquidity by synchronizing buy and sell transactions of a security; operate within the established transaction spread ( that is bid/offer spread) which shall be a maximum limit of three per cent and subject to review from time to time.

Also, the market maker will have  the capacity for continuous two-way quotes in the relevant stocks through the trading session in a minimum quote size of 100,000 units of shares and must have the capacity to deliver and settle transactions within the prescribed settlement cycle of T+3. They must equally have the capacity to lend and borrow the designated securities at any time, with a view to ensuring stability in the market.

Meanwhile, the Director General of the NSE, Professor Ndi Okereke Onyiuke while reacting on the development of marker makers said, “ The NSE is awaiting liquidity providers as the last requirement to license the companies that have been registered as market makers by the SEC
According to her “ They are expected to improve market liquidity when they commence operations. The insurance companies, Banks, Asset Management companies and even Pension Funds can become Liquidity Providers to market makers who are seeking licence from the NSE to operate as such.
Onyiuke further affirmed that the Nigerian Capital Market (NCM) has become more dynamic as demonstrated by the new trend whereby investors are taking profit at regular intervals.

“This explains the periodic upswing and downswing of prices since April year 2009, it is heartwarming to note that the market is on a steady path to recovery” she noted


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