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Bonds: Sanction market makers for failing to lift market – Oluwo

By NKIRUKA NNOROM

A capital market operator has expressed concern over the inability of primary market dealers appointed in the bond market to fulfill their obligation, saying that the regulators should take step to sanction some of them for failing in their duty.

The operator, Mr. Wale Oluwo, who is also the Managing Director, Investment Banking, BGL Securities Limited, said that since the market makers were signed on to create balance in the system by maintaining firm bid and offer prices in some given securities, it behooves them to do just that.

He said that it was regrettable that up till now, none of the primary market dealers appointed over two years ago in the bond market has either been banned or suspended for reneging in their duty.

He said, “They signed a paper to say, ‘we are licensed as market makers and we will continue to make market’, that is to say, ‘we are committed to buy and sell no matter what happens’ but also the regulation has been violated and there has been no sanction. The market maker has been taken out of the market and none of them has been banned for three or six months for not making market that they committed to make.

“The essence of market making is that anybody that wants to buy, you must sell to the person and anybody that wants to sell, you must buy. That is why it is Over-the-Counter, OTC, where they will call you on phone and ask for your quote and your quote must be a two-way quote – your offer and your bid price- the price at which you will buy and the price at which you will sell.”

He expressed fear that even the latest ones appointed in the equity market might go the way of their counterparts in bonds market, saying,  “Now, without success in the bonds market that we have operated for about two years, we are now trying to appoint market makers in the equity market. How is it going to work?”

He noted, however, that those market makers might not want to continue to play their roles because they would not want to create a situation where they will give the two-way quote and investors start dumping on them. “The market makers in the bonds market were making market before, but since this interest rate upward movement started by the CBN, it got to a point, a lot of them stopped making market. A lot of the long term bonds, like 20-year bonds, nobody is buying or selling them.

“Well, people want to sell, but nobody is buying. The 10-year bond, nobody is buying or selling it. People are just concentrating at the lower end of the market; two-year bond, three-year bond, five year bond. That is the problem. So, for me, in the bonds market, we had market makers who were making market,” Oluwo stated.

According to him, when a scenario like this starts playing up, ‘the market has collapsed. ‘


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