Market Makers Failed Us When We Needed Them Most, NSE Boss Laments

• Lauds CBN FX Interventions, Tasks FG On Complimentary Fiscal Policies

Oscar Onyema, chief executive of the Nigerian Stock Exchange (NSE), on Tuesday announced plans for ‘significant changes’ and the rules around the concept of market making on the bourse.
Fielding questions during a review of the market activities in 2017 and the outlook for 2018, he lamented that this has become necessary given that “they failed when we needed them most.”
The concept of market making was introduced to the Nigerian bourse in 2012, when 10 players were selected from a total of 20, as part of efforts to ensure a turnaround, while injecting breadth and depth.
The selected players, were required to have N500m paid-up capital and act as wholesalers, making two-way quotes to brokers and other clients, for the shares in which they are registered to trade as a principal, to match supply and demand, besides having the commitment of a bank ready to serve as ‘liquidity provider. They included: FBN, ESS Don Loren Merrifield, Stanbic IBTC, Renaissance Capital, and Greenwich Stockbrokers. Others were Future View Securities, Vetiva, Capital Bancorp, WSTC, and CSL Stockbrokers Limited.
They were expected to make profit by committing their company’s capital by buying low and selling high.
The NSE’s decision to change the market making structure this year may not be unconnected with the urgent need to tackle liquidity constraints, while ensuring that should there be a repeat of the 2008 scenario when foreign portfolio investors dumped Nigerian shares in an apparent flight for safety, a situation that saw the market plunge helplessly from 64,000 basis points and market capitalization from N13tr.
According to Onyema, “we are not satisfied with their participation rate and how they catalysed growth in the market, especially when we really needed them to participate in the commodity down cycle.
“We are looking at it critically and we have engaged with the market makers and other market participants, and in 2018 you are going to see a very significant change in the structure of market making and rules around market making so we are looking at making significant changes.”
Besides this, he spoke of the need to grow the participation level of retail investor in trading activities from the current seven million, as a percentage of the nation’s estimated 184m population.
He said domestic retail investors could only account for 37%, as foreign investor participation remained the primary driver of activities, adding that the robust 42% returns recorded by the composite NSE All-Share index, boosted by the fact that the market remains cheap.
This, he stressed, arise from the 2016 devaluation of the Naira, the nation’s currency, a situation that made stocks traded on the bourse cheap and attractive to foreign investors, helped by the twin factors of the strong fundamentals of the market and the Investors and Exporters window introduced by the Central Bank of Nigeria (CBN) for the foreign exchange segment of the inter-bank market, which ensured that foreign investors can cash out with ease at any time.
“The Investors and Exporters’ window has been tested and (investor) confidence level is high and improving,” he said, expressing hope that fiscal policy would be formulated to compliment and indeed drive the second round of growth expected in the market.
While noting the political risk in the country ahead of the 2019 general elections, Onyema expressed high hope that company performances will continue to sustain growth already seen.
On the need for ensure continued transparency, he said the NSE has reached out to other regulators in the financial markets to ensure their officials do not take undue advantage of non-public market sensitive information.
Speaking on the voluntary delisting of firms’ from the exchange, the Executive Director, Regulation, Ms Tinuade Awe said the exchange has enhanced its rules to ensure that firms behave in an orderly manner, especially companies that want to delist voluntarily.
“We have instruments like indemnity obligations and a number of other creatively guard instrument to ensure that for a period of time, a company will continue to comply with instructions like paying investors in an order manner if they do not want to remain. This year we can go back and beef up our rules and processes around delisting.”

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