By NKIRUKA NNOROM

The Nigerian Stock Exchange, NSE, has warned Market Makers against exercising voting right in companies in whose securities they make market in, saying that severe sanctions will be meted out to offenders.

The NSE also warned the Market Makers against exerting any form of influence on the management of  the companies concerned or exert any influence on them to buy back their shares or back the share price.

In a circular to the Dealing member firms, signed by Olufemi Sobanjo, Head, Broker/Dealer Regulation, the NSE stated that the purpose of the circular was to provide market participants with a brief guide on acceptable conduct in relation to Short Selling, Market Making and Securities Lending.

It further stated that Market Makers are required to disclose any corporate involvement such as directorships or substantial shareholding, above five percent, in companies in whose securities they engage in market making activities, adding, “Market Makers are required to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of market making business to prevent the misuse of material non-public information.”

Setting out additional rules on Short Selling, the Exchange said, “Naked short selling – the practise of selling a security that one does not own and has not borrowed- is strictly prohibited.  No Dealing Member other than a Market Maker may execute a short sale transaction on the basis of a bona- fide arrangement to borrow the securities.”

“All Market Makers may execute a short sale transaction provided that they have borrowed the securities or have entered into a bona-fide arrangement to borrow the securities which will be available on the date of delivery. All other Dealing Members must have borrowed the securities before executing a short sale transaction,” the Exchange added.

The NSE further stated in the circular, that only Securities Lending Agents (SLAs) duly registered by the Securities and Exchange Commission, SEC, are permitted to engage in securities lending, saying that during the roll out period, only the securities of Qualified Institutional Investors (QII) could be made available for borrowing pursuant to appropriate agreements with SLAs.

It added, “Dealing Members must not borrow or make arrangements to borrow securities directly from investors without the intermediation of SLAs.”

It will be recalled that already, there are 13 existing Primary Market Makers and another 13 Supplemental Market Makers in the Nigerian capital market, whose role it is to create liquidity in the stocks they make market in.

For each stock in the portfolio of market makers, two PMMs and additional two SMMs were appointed.

Under extant law of market making, the market makers are required to stabilise the market by ensuring continuous liquidity and synchronising buy and sell transactions; must have the capacity for continuous two-way quotes in the relevant stocks throughout the trading session in a minimum quote size to be specified by the NSE with the approval of SEC.