Market makers: NSE seeks banks’ support for liquidity

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By BABAJIDE KOMOLAFE & NKIRUKA NNOROM

The NSE said it will be engaging the commercial banks’ on the need to provide liquidity support to the recently appointed Fixed Income Market Makers, FIMMs, to help optimise their operation.

This came ahead of the take off of retail bonds trading on the secondary market on February 1 this year.

The NSE’s Chief Executive Officer, Mr. Oscar Onyema, made the disclosure at a training organised by the Exchange to acquaint stockbrokers and financial journalists on structure of retail bond trading.

His disclosure followed the concern that the major inhibiting factor to the success of the market makers both in the equity sector and bond market will be that of access to banks loan to assist market makers execute their mandate of ensuring equilibrium in the market.

He allayed fears that trading bonds on retail basis will create unnecessary competition with OTC bond market, saying that the retail market is not just there to complement OTC market, but to introduce greater efficiency in the system.

Onyema explained that unlike the equity market where the market makers have basket of equities in their portfolio, all the appointed fixed income market makers will have the opportunity of trading on all eligible bonds, including Sovereign, Non-Sovereign and Corporate bonds.

On possibility of foreign investors hijacking the newly introduced window of bonds trading, Onyema said, “Nigeria operates a free economy that allows free entry and exit for foreign investors; we believe that it is good market structure and we have keyed into it by structuring the stock market in like manner.

What we will do is to ensure that we operate the system in fair and transparent manner to ensure a level playing field for all participants, and if local investors want to participate, we will not stop them.”

He further stated that with inclusion of FGN bonds by Morgan Stanley in its emerging market index, and planned inclusion by Barclays, it would be unfair for the Exchange to deny foreign investors access to fixed income market via the trading on the floors of the NSE.

He disclosed that the capitalisation of the bonds market in Nigeria increased by significant 55.6 percent in one year, rising from N3.74 trillion in 2011 to N5.82 trillion in 2012.

He affirmed that bonds market still possesses potential for further growth, owing to the infrastructural needs of the country which the government is trying to address.

“The fixed income market making will increase accessibility of the bonds market to the investing public. Until now, the bond market was mainly accessible to the institutional, Corporate and other High Networth individuals through Over-the-Counter, OTC, market. With the introduction of the FIMM programme, all investors will now have easy access to the bond market through their broker/dealers via the NSE’s Automated Trading System,” he further stated.

He listed the benefits of the system to include flexibility and ease of trading, transparency which will make it easy for investors to have access to real-time prices and volumes, just like shares. This will make it easy for investors to monitor their investments and receive up-to-date information.

Others include provision of opportunity for investors to diversify their portfolio to bonds in order to complement their investments in other asset classes, as well as improve liquidity on retail scale.

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