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Stock market: Why market makers can’t survive – Stockbroker

By PETER EGWUATU

The inability of the Nigerian stock market to bounce back to reckoning has been attributed to lack of capacity of the market makers to provide the much needed liquidity.

A leading and prominent stockbroker, who spoke to Vanguard on condition of anonymity, faulted the regulatory authorities for the selection of the market makers.

According to him, “How can the regulators select firms that are highly indebted to act as market makers?  Where will they get the funds from to pump into the market? The market has been affected by illiquidity. How could people who are chronic debtors be appointed as market makers when there are some operators that are financially clean that were not considered to play the role of market making?

Continuing, he said, “The appointment of the market makers was highly politicized and not done in a transparent manner. It is really nonsensical for regulators to appoint people that have no financial muscle to provide the needed liquidity that would revive the market. There are just about three firms that are capable to play the role of market making, the rest are not competent.

When asked the firms that are competent for the role he said, “I think it is only FBN Capital, Stanbic IBTC, and Renaissance Capital. If we must grow the market then issues like appointment of market makers must be based on facts rather than sentiment.”

It will be recalled that the Nigerian Stock Exchange (NSE) released the names of 10 market makers that are expected to boost liquidity in the capital market.

Speaking during the unveiling of the companies, the Chief Executive Officer, NSE, Mr. Oscar Onyema, said that this was another milestone in the history of the Nigerian capital market.

He said that the move was important as it was geared towards bringing back liquidity and depth into the market, which had been identified as the second largest market in sub-Saharan Africa.

A market maker is a dealing firm, which maintains firm bids and offers prices in a given security by standing ready to buy or sell that security.

According to the NSE, the 10 stockbroking firms were selected from a list of 20 that had applied last year.

The market makers as announced by the NSE are Stanbic IBTC; Renaissance Capital; Future View Securities; Vetiva Capital; ESS/DunnLoren Merrifield; WSTC; Capital Bancorp; FBN Securities; GreenwichSecurities and CSL Stockbrokers.

Onyema said, “This is a great milestone and a major step in the direction of turning the market round to bring liquidity and depth back into the market. We will continue to move forward on this. The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million, we also examined their compliance history and looked into their operational capabilities including their technology and processes.”

He added further that the selected firms were taken through trainings, debated the appropriate market structure to be used and the Exchange further went through the approval of the Securities and Exchange Commission in the selection process.

A major highlight of the unveiling was the selection of a basket of quoted companies in which the financial intermediaries would provide the desired level of liquidity via a blind draw.

The Exchange added that the primary obligation of the Market Maker was to always make a two-way price in each of the stocks in which they make markets.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.