Four months after approval was given to 10 stockbroking firms to commence market making operations in the Nigerian Stock Exchange (NSE) in order to address the liquidity challenges plaguing the market, market watchers have continued to be disillusioned that the much awaited messiahs have not commenced operations.
The commencement of operations by these companies became germane following the persistent downward trend on the equity market as it would help to mop up excess shares on offer in the system, so as to control the depression in the market.
The operators who identified the establishment of market makers as a major factor that could stem the tide of the persistent fall in share prices and ensure sustainable market stability have called on the Securities and Exchange Commission (SEC) and the NSE to ensure that the firms it registered to play the role of market makers urgently commenced operation.
The NSE, in April gave approval to 10 stockbroking firms to commence market making operations in order to address the liquidity challenge in the market.
The firms approved were Stanbic IBTC Capital, FBN Capital, Greenwich Securities, WSTC, Future View, Vetiva Capital Management, ESS/DunnLoren Merrifield, CSL Stockbrokers, Capital and Capital Bancorp.
The NSE had said the companies were selected from the 20 firms that applied that each of them had been given the portfolio of 20 listed companies at the moment to make market in.
A market maker should create equilibrium in the stock market by buying shares overhang and offering same for sale when there is scarcity in order to create activity in the given stock.
Commenting, Chief Executive Officer, NSE, Mr. Oscar Onyema, had described the unveiling of the companies as major landmark aimed at bringing back liquidity and depth into the second largest market in sub-Saharan Africa.
He said: “This is a great milestone and a major step in the direction of turning the market round to have 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.
“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 (SEC) in the selection process.”
However, since the registration, operators noted that nothing feasible has happened as these market makers are yet to commence their roles adding that the full operations of this rescue initiative was urgently needed to boost the market.
The Chief Executive Officer of Lambert Securities Limited, Mr. David Adonri, said establishment of market makers could help to bring stability to the nation’s fledging capital market.
He noted that market makers would achieve this by mopping up excess supply of shares while simultaneously supplying same stock in event of scarcity within the trading period.
He explained that market making is a trading method whereby a stock trader quotes two prices simultaneously (buy and sell) for the same security and within the same period, when prices get to buy price, he buys and when it get to sell price he sells.
The intervention, according to him prevents wide price volatility in the market thus ensuring sustainable stability.
“It is true that market makers can stabilise the market but they operate under a quote-driven market structure in contrast to the order driven structure we currently operate at NSE. Our current trading system on the NSE is order- driven. Here, every trading Stockbroker is either buying or selling stocks without obligation to buy or sell if the prices get to particular limits. The Stockbroker buys or sells at the prevailing market price.
“In a quote-driven system, few stockbrokers are appointed as Market makers who quote two prices for the same stock and are under obligation to buy and sell if the prices get to the quoted prices.