…As SEC links failure of NSE securities lending, market making to liquidity challenges***
Activities on the Nigerian Stock Exchange (NSE) opened for the week on Monday on a bullish trend with the market capitalisation appreciating by N66 billion.
The News Agency of Nigeria (NAN) reports that the market capitalisation improved by N66 billion or 0.51 per cent to close higher at N12.913 trillion against N12.847 trillion on Friday.
Also, the All-Share Index grew by 192 points or 0.52 per cent to close at 37,312.28 compared to 37,120.28 achieved on Friday.
An analysis of the price movement showed that Dangote Cement led the gainers’ table, growing by N8.99 to close at N238 per share.
Forte Oil followed with a gain of N3.87 to close at N47.97, while Okomu Oil gained N2.99 to close at N67.99 per share.
Glaxosmithkline added 25k to close at N25.25 and National Salt Company of Nigeria inched 14k to close at N15.40 per share.
On the other hand, Nigerian Breweries topped losers chart during the day, dropping by N4.92 to close N138.98 per share.
Guaranty Trust Bank trailed with a loss of N1.31 to close at N41.69 and International Breweries shed 45k to close at N49.35 per share.
Custodian and Allied Insurance was down by 18k to close at N3.72, while Zenith international Bank declined by 16k to close at N24.84 per share.
Similarly, the volume of shares traded rose by 91.89 per cent as investors bought and sold 336.34 million shares valued at N30.02 billion in 3,778 deals.
NAN reports that this was in contrast with a turnover of 175.28 million shares worth N2.65 billion sold in 3,235 deals on Friday.
Dangote Cement was the toast of investors with an exchange of 128.92 million shares worth N27.082 billion.
FBN Holdings followed with an account of 77.56 million shares valued at N554.89 million and Fidelity Bank traded 15.90 million shares worth N26.75 million.
Diamond Bank sold 14.29 million shares valued at N16.48 million, while Guinness Nigeria exchanged 9.89 million shares worth N1.01 billion.
In the meantime, the Securities and Exchange Commission (SEC) has attributed the failure of the securities lending and market making initiatives introduced by the Nigerian Stock Exchange (NSE) in 2012 to liquidity challenges facing the capital market.
Mr Mounir Gwarzo, SEC Director-General, stated this at the post-Capital Market Committee (CMC) news conference in Lagos on Monday.
Gwarzo said that the issue of illiquidity had become a major challenge impeding the growth of the market.
Securities lending is the market practice of temporarily transferring securities, for a fee, from the holder (the lender) to another party (the borrower), with the borrower agreeing to return the securities to the lender, either on demand or at the end of the agreed loan term.
Securities lending plays an important role in capital markets by providing liquidity, which in turn reduces the cost of trading and promotes price discovery.
Market Making on the other hand, is the act of entering bid and offer prices in the automated trading system for a specified security.
The primary role of a market maker is to maintain a fair and orderly market in its particular securities of responsibility and in general, to contribute positively to the operation of the overall market.
Gwarzo said that most of the initiatives introduced by the exchange in the past to boost activities failed because of lack of access to liquidity.
He said that the commission had inaugurated a committee that would commence a study on how to address liquidity issues in the entire gamut of the market.
Gwarzo said that the committee had agreed to submit the report in the next four weeks, after which a team would be set up to kick-start the implementation process.
He stated that the securities lending and other initiatives introduced initially in the market to improve liquidity do not yield reasonable results because market operators could not access the liquidity needed to execute the deals.
“We received a report from the committee looking at the liquidity system in the market. One of the things that are challenging this market is the issue of liquidity.
“Some of the initiatives we come up with like the securities lending, and some other initiatives is because those operators do not have access to liquidity and that is why it has not been very effective.
“This committee will look at the entire spectrum of liquidity in the market, what we are going to do to address some of these challenges and they have agreed that in the next four weeks they will submit the report and we intend to come up with an implementation team,” he said.
NAN reports that the NSE in 2012 commenced market making activities with the appointment of 10 market makers, with the sole aim of stabilising and boosting liquidity in the market and later appointed another 13 supplementary market makers, as supplementary liquidity providers.
Gwarzo said that the commission had made substantial progress in the areas of inculcating capital market studies in both secondary schools and tertiary institutions.
He said that the first phase of the studies would commence in April 2018.
“We have made a presentation to the CMC, they have adopted and approved the budget, we have given a deadline of end of this month for all the stakeholders to pay in their contributions and we expect by April next year, we should be able to get the first phase of capital market studies.
“We intend to work closely with Nigerian Education Resource Development Centre so that that they can inculcate the studies of the capital market both in the secondary schools and tertiary institutions, “ Gwarzo stated.