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Market makers may face liquidity hurdle
Attempt by the Nigerian Stock Exchange (NSE) to help deepen the equities market has resulted in the self regulatory organisation taking the giant stride to inaugurate 10-market makers on the floor of the Exchange.
Market makers in every economy, where shares and securities are traded, usually help to stabilise the equities market and further guide against price fluctuation which may be to the detriment of investors.
The market makers, who are dealing firms, often bid and offer prices in a given security by standing ready to buy or sell that security.
If the market makers are eventually brought on board, this will not be the first time we will be having some entity playing that role and intervening in our local bourse. The banks, before the huge melt-down of prices in the equities market, had played the market maker role, but with a wrong motive.
It is on record that banks do advanced funds to both mop up their own shares and buy others, so as to create artificial transaction in the market, even as this resulted in all forms of manipulation in prices of shares; which is the bedrock of all the woes investors are suffering today in the capital market.
To date, the market is yet to recover from the about N1.2 trillion expended by banks through some operators in the purchase of shares, just as this contributed to the loss of about N9 trillion or 70 per cent of investment value between 2008 and 2010.
One major challenge the 10 market makers group may face in both the short and long run is the issue of liquidity squeeze, and which may amount to the NSE embarking on wide goose chase, because as it stand now, the dealing firms do not have a ready fund of their own and if they have fund, for how long will they be ready to tie down their money considering the present state of health of the stock market.
According to Oscar Onyema, Director General of the Exchange, who regarded the development as another milestone in the history of the Nigerian capital market, the 10 stock broking firms were selected from a list of 20 that had applied last year.
Stanbic IBTC; Renaissance Capital; Future View Securities; Vetiva Capital; ESS/DunnLoren Merrifield; WSTC; Capital Bancorp; FBN Securities; GreenwichSecurities and CSL Stockbrokers are the market makers, as announced by the NSE.
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 Director-General, SEC, Ms.Arunma Oteh, had restated the resolve of the commission to use the platform to ensure that more investible funds flow into the Nigerian market.Share