Market Makers Struggle on Equities Stability
- By Business World
- Published December 5th, 2011
- News
- Unrated
Fresh indications emerged last week that the appointed market makers as approved by the Securities and Exchange Commission (SEC) on the nation’s capital market may no longer commence operation this December, 2011 as earlier scheduled.
However, almost 80 per cent of the trading activities on the floor of the NSE are now being driven by foreign investors, the same position being maintained by the local investors during bullish trading. Mr. Kasimu Garba Kurfi, the MD/CEO, APT Securities and Funds Limited said local investors which initially control between 70 to 80 per cent of the total NSE trading activities are now trading as low as between 20 to 30 per cent in the market.
It would be recalled that due to the turmoil in the financial system and global economic recession, which led to the crash in the price of equities on the trading floor of the NSE, the new management of the capital market instituted a body of market makers to bail-out the equity market from the ongoing crash it’s experiencing. But the body as expected to commence operation this December is still strategizing on how to improve and return the market to order.
The Nigerian stock market which experienced boom from year 2000 till early 2008 from buy orders, sell orders in the secondary market and also made good money from the primary market through new issues, new listings before it crash-landed and felt the impact of the global economic depression from the second quarter with equity capitalization dropping from a high of N12.64 trillion in May 3, to a low of N6.21 trillion on December 16 before finally closing at N9.56 trillion on December 31, 2008. The correction was hoisted by the tightening of liquidity in the banking sector arising from the public sector spending, excess supply of stocks necessitated by profit taking by investors.
Against this background, the Securities and Exchange Commission (SEC) with NSE agreed to set-up and registered five market makers to save the market from total collapse, since the fundamentals of the companies no longer determine the movement of share prices in most cases.
BusinessWorld Intelligence authoritatively gathered that the Nigerian Stock Exchange readiness to set the market on recovery path through market makers operation commencing from next month is no longer feasible. The chief executive officer of the NSE, Mr. Oscar Onyema had earlier told the stockbrokers that there will be primary market makers and supplementary market makers. Preparatory to the commencement of their operations, the Exchange is currently discussing with the Securities and Exchange Commission on the modalities of the buying and selling process and its harmonisation process.
Alh. Rashidi Yussuff , the Chairman, Association of Stock broking Houses of Nigeria said the idea of instituting market makers is a welcome development that the management of NSE would take to set the equities market free from the current bearish trend. He noted that the market makers are just like major distributors who buy a large volume of shares for the less financially privileged to purchase.
According to him, “There is no magic that market makers would perform in the Nigerian stock market, they are just like a major distributors stabilising the market price and ensure that the products get to the retailer as at the time they need it. Market makers would buy the bulk of shares from different companies, while those who are not buoyant enough can always purchase from them. It is not that as their name implies, they are going to boost the market in a special way. They cannot create a special or different market price”.
He noted that the Security and Exchange Commission (SEC) had previously got the whole idea wrong by talking about capitalization but the new ideal introduced now by the authority of the Nigerian Stock Exchange (NSE) that any broker can be a market maker is a good idea. He said: “For you to be a marker maker, you must have been a regular operator at the NSE handling the trading activities. You must have a proven record of buying and selling large volumes of shares”
A stock analyst and the Chief Executive of Molten Trust Limited, Mr. Motolani Oduwole reiterated that the market makers are currently mapping-out some strategies with a view to providing a lasting panacea to the current trend in the equity market. He added that the market makers have not commenced operations yet. That they are currently having their weekly meetings to facilitate a good way of making market.
On modalities set in place to make their market making strategy work, Oduwole said that they are still waiting for their modalities to see how they want to put it at work. He added that the market is responding to the situation in the macro economy and as long as the yield on money market instruments and bonds is concerned, some of them are beyond 15 per cent per annum, so also the investors in the equity market except for security reasons that some should be giving dividends that will commensurate with the yields on the money market because yields are rising in the money market that is why liquidity is flowing in the money market and not to the capital market.
According to him, “Some stocks that have strong potentials will return high yield during good liquidity in the market. Fixing the market requires macro-economic remedy because it goes beyond the thought of the authority of the stock exchange or capital market operators alone can single-handedly play because it is a wide macro-economic issue.
However, almost 80 per cent of the trading activities on the floor of the NSE are now being driven by foreign investors, the same position being maintained by the local investors during bullish trading. Mr. Kasimu Garba Kurfi, the MD/CEO, APT Securities and Funds Limited said local investors which initially control between 70 to 80 per cent of the total NSE trading activities are now trading as low as between 20 to 30 per cent in the market.
It would be recalled that due to the turmoil in the financial system and global economic recession, which led to the crash in the price of equities on the trading floor of the NSE, the new management of the capital market instituted a body of market makers to bail-out the equity market from the ongoing crash it’s experiencing. But the body as expected to commence operation this December is still strategizing on how to improve and return the market to order.
The Nigerian stock market which experienced boom from year 2000 till early 2008 from buy orders, sell orders in the secondary market and also made good money from the primary market through new issues, new listings before it crash-landed and felt the impact of the global economic depression from the second quarter with equity capitalization dropping from a high of N12.64 trillion in May 3, to a low of N6.21 trillion on December 16 before finally closing at N9.56 trillion on December 31, 2008. The correction was hoisted by the tightening of liquidity in the banking sector arising from the public sector spending, excess supply of stocks necessitated by profit taking by investors.
Against this background, the Securities and Exchange Commission (SEC) with NSE agreed to set-up and registered five market makers to save the market from total collapse, since the fundamentals of the companies no longer determine the movement of share prices in most cases.
BusinessWorld Intelligence authoritatively gathered that the Nigerian Stock Exchange readiness to set the market on recovery path through market makers operation commencing from next month is no longer feasible. The chief executive officer of the NSE, Mr. Oscar Onyema had earlier told the stockbrokers that there will be primary market makers and supplementary market makers. Preparatory to the commencement of their operations, the Exchange is currently discussing with the Securities and Exchange Commission on the modalities of the buying and selling process and its harmonisation process.
Alh. Rashidi Yussuff , the Chairman, Association of Stock broking Houses of Nigeria said the idea of instituting market makers is a welcome development that the management of NSE would take to set the equities market free from the current bearish trend. He noted that the market makers are just like major distributors who buy a large volume of shares for the less financially privileged to purchase.
According to him, “There is no magic that market makers would perform in the Nigerian stock market, they are just like a major distributors stabilising the market price and ensure that the products get to the retailer as at the time they need it. Market makers would buy the bulk of shares from different companies, while those who are not buoyant enough can always purchase from them. It is not that as their name implies, they are going to boost the market in a special way. They cannot create a special or different market price”.
He noted that the Security and Exchange Commission (SEC) had previously got the whole idea wrong by talking about capitalization but the new ideal introduced now by the authority of the Nigerian Stock Exchange (NSE) that any broker can be a market maker is a good idea. He said: “For you to be a marker maker, you must have been a regular operator at the NSE handling the trading activities. You must have a proven record of buying and selling large volumes of shares”
A stock analyst and the Chief Executive of Molten Trust Limited, Mr. Motolani Oduwole reiterated that the market makers are currently mapping-out some strategies with a view to providing a lasting panacea to the current trend in the equity market. He added that the market makers have not commenced operations yet. That they are currently having their weekly meetings to facilitate a good way of making market.
On modalities set in place to make their market making strategy work, Oduwole said that they are still waiting for their modalities to see how they want to put it at work. He added that the market is responding to the situation in the macro economy and as long as the yield on money market instruments and bonds is concerned, some of them are beyond 15 per cent per annum, so also the investors in the equity market except for security reasons that some should be giving dividends that will commensurate with the yields on the money market because yields are rising in the money market that is why liquidity is flowing in the money market and not to the capital market.
According to him, “Some stocks that have strong potentials will return high yield during good liquidity in the market. Fixing the market requires macro-economic remedy because it goes beyond the thought of the authority of the stock exchange or capital market operators alone can single-handedly play because it is a wide macro-economic issue.
