The Nation Newspaper

Tag: MARKET

  • Guidelines on micro market coming

    Guidelines on micro market coming

    The National Insurance Commission (NAICOM) will soon release the guidelines that will help unlock the over N60 billion micro insurance untapped opportunities, The Nation has learnt.

    It was gathered that the commission is putting finishing touches to ensure the release of the much-anticipated guidelines that would help deepen retail market and take insurance to the grassroots.

    An industry observer said the guidelines when operational, would strengthen the collaboration between insurers and micro finance banks.Noting that operators are anxiously waiting to leverage on the guidelines.

    Managing Director Riskguard-Africa Nigeria Limited Yemi Soladoye, said the embrace of micro insurance and retail market would trigger a revolution in the industry, adding that some companies that have keyed into the system are presently doing very well.

    He urged insurers to develop products that suit the need of the public, adding that any product that does not meet the need of the masses would fail. He said most insurers sell products and not solution.

    He noted that research has revealed that Micro Finance Banks (MFBs) in the country presently have over 20 million customers, stressing that the customers are good prospects for micro insurance.

    He said the problem of insurance is that most people lack education on how it operates, adding that it is worrisome that most operators recycle products developed by their counterparts.

  • Foreign portfolios hit N4.3tr at stock market

    Foreign portfolios hit N4.3tr at stock market

    • Nigerians take lead as market recovers

    Foreign investors staked about N4.3 trillion on quoted shares on the Nigerian Stock Exchange (NSE) between 2007 and March 2013, The Nation’s investigation has shown.

    The latest report showed that foreign investors gradually and consecutively increased their investments in Nigerian equities from about 15 per cent of total market turnover in 2007 till a high of about 67 per cent in 2011.

    Foreign portfolios were, particularly, the main drivers of transactions on the NSE in the past two years, with foreign investors accounting for average of two-thirds of equity transactions between 2011 and last year.

    Nigerian investors have, however, made strong rebound this year, displacing foreign portfolios as the main drivers of stock market’s transactions. Compared with the situation in 2011 and 2012, when foreign investors accounted for 67 per cent and 61 per cent of total turnover on the NSE, foreign investors accounted for about 43 per cent.

    Nigerian institutional and individual investors stepped up their transactions from a recent low of 33 per cent in 2011 to 39 per cent in 2012 and account for more than 57 per cent of total transactions.

    The report underlined the early positioning of the foreign investors, who had saw through the prospects of Nigerian equities amid the downtrend and the rampant herd instinct of the domestic investors, who mostly usually look at recovering market.

    The two-way flow of foreign portfolio investments showed that while foreign investors flowed in about N2.01 trillion during the period, they equally took away about N2.17 trillion.

    Foreign portfolio transactions increased from N615.6 billion in 2007 to N787.4 billion in 2008. These trimmed down to N424.6 billion in 2009 before rising consecutively to N577.3 billion and N847.9 billion in 2010 and 2011. Foreign portfolio trades stood at N808.4 billion in 2012 and were reported at N215.6 billion by March 2013.

    Market analysts said the proportionate increase in domestic investors’ portfolios would help to stabilise the market against the speculative activities of the foreign investors, though they were cautious about the tendency for domestic investors to resort to panicky portfolio reviews.

     

  • ‘Africa’s stock markets should unite to attract investors’

    ‘Africa’s stock markets should unite to attract investors’

    Africa’s 24 stock markets should cooperate if they are to seize high levels of investor interest, Nicky Newton-King, Chief Executive Officer, Johannesburg Stock Exchange (JSE), has said.

    The leader of Africa’s biggest securities exchange, told AFP that global investors have their eye in Africa and the continent’s stock market leaders should seize the opportunity.

    “The appetite for Africa is very, very high. I think everybody is trying to find their way, to participate meaningfully in that. All of us who are privileged enough to run exchanges, need to figure out that these waves of investor appetite aren’t yours by right. Once they come, you have to be able to ride them properly. We should not be taking this as business as usual, this is a business opportunity,” she said.

    Newton-King said allowing South Africans to more easily place orders into Nigerian stock markets, or by allowing Kenyans to invest in joint-listed South African stock in KES shillings, would attract more foreign investors.

    She added that there are benefits from cross-listing, as the JSE learned when its leading shares moved to London. “When Anglo-American cross-listed in London, the amount of trades in Anglo-American increased.

    “South Africa’s percentage of trade in Anglo-American decreased, but the decreased percentage was worth more. In those cases you have to think quite bravely,” she said.

    She explained that the International Monetary Fund’s (IMF’s) forecast that the aggregate economy of sub-Saharan Africa will grow at 5.7 per cent this year, presents an opportunity for the continent, adding that the one way to channel the investor interest through African markets would be to make it easier to invest across borders and to improve liquidity in small markets so that assets can be bought and sold quickly.

  • Brokers caution investors on market volatility

    stockbrokers have cautioned investors to be wary of market’s extreme upswings and downswings due to the recent introduction of 10 per cent daily price change for all stocks on the Nigerian Stock Exchange (NSE).

    Market operators said market appears to be more volatile for an everyday investor who ordinarily is not psychologically prepared for losing or gaining 10 per cent in a day.

    According to operators, when compared to the fixed income segment of the capital market, an investor can lose 10 per cent he got at the end of one year investment in the fixed income market in just one day if such is invested in the capital market.

    However, some operators opined that the remarkable improvement in the fundamentals of the equities market and recovery of the secondary market have increased the confidence of the domestic investors.

    Chief Executive Officer, Lambeth Trust & Investment Company Limited, Mr David Adonri, said declining yield on fixed income securities has led to migration of more domestic investors to equities.

    “This accounts for the increasing percentage of domestic investors participating in the equities market. Foreign investors are not actually participating less, if you consider CBN report on foreign portfolio investment inflow but rather, domestic investors are participating more,” Adonri said.

    According to him, the accelerated growth in equities especially in first quarter was facilitated by several positive factors together with high expectations from investors.

    He, however, noted that the market ought to attain its highest point within the second and third quarters of the year, based on seasonal antecedents.

    President, Association of Stockbroking Houses of Nigeria (ASHON), Mr Emeka Madubuike, cautioned that investors should not be carried away with the present price movement but that they should invest in equities with sustained growth of more than five years.

    He pointed out that such stocks would not be seriously affected by prolong lull in the capital market noting that there has been an upsurge in the number of short-term investors in the capital market.

    He cautioned that investors should not be influenced by greed to avoid burning their fingers.

     

  • ‘Entry, exit are free in capital market’

    ‘Entry, exit are free in capital market’

    The financial markets are major sources of raising funds for transactions. In this interview with AKINOLA AJIBADE, the Managing Director, UBA Trustees Limited, Mrs Oluwatoyin Sanni, advises investors to operate a balanced portfolio of investments. She also speaks on the capital market, retail bond trading, appointment of women onto boards of companies and attainment of Vision 20: 2020 objectives, among others.

     

    The capital market is topsy-tursy. What does this portend for the long-term growth of the market?

    The market is a critical part of the financial industry. The growth recorded in the market is crucial to the health of the financial industry, and the economy in particular. When you look at the stock market, you will discover that it is an integral part of the financial services market. Now that the market is rebounding, it’s going to provide long-term avenues for individual and institutional investors to make money. It will also provide opportunities for long-term wealth creation, if investors recognise the fact that it is not wise to concentrate all their investments in one market such as equities. It is worthy of note to say that our markets are inter-dependent. Each needs the other for growth. We need the money and capital markets to grow our investments and vice versa. They work hand in hand. Therefore, investors should not put all their investments in one basket if they want to achieve good returns on the investments. There must be good and balanced investment portfolios.

    Do you think the tempo of activities in the market can be sustained, given the measures put in place by the management of the Nigerian Stock Exchange (NSE)?

    The reforms are still unfolding in the market. Many are initiated by the Securities and Exchange Commission (SEC). Others came from the Exchange. The Exchange has shown a strong drive to grow the market in recent times. For instance, the introduction of market making, lending, investors protection fund among other initiatives have buoyed confidence in the market. Before now investors have lost confidence. But many have now regained their confidence as a result of the steps taken by the regulators. I think the activities in the market are sustainable.

    The growth in the market is largely driven by local and foreign investors. Do you foresee a recurrence of what happened in 2008 when foreign portfolio investors were forced to leave?

    You cannot force investors to stay in your market. We need to understand the pull and push factors in the market. What we need to do is to make our market attractive as much as possible. We must ensure that our market in comparative terms is more attractive than the next market. We must ensure that all necessary infrastructure are available in our market.We must ensure that our disclosure obligations meet international standards. For instance, if there is a major liquidity squeeze in the continent and investors need funds to meet their domestic obligations, they have no choice than to pull out their investments from the crisis zone. That is the reality on ground. But that does not give us room to discourage the participation of foreign investors in our market. The truth of the matter is that we need inflow of capital into our market to make it stronger. Sometimes people need to move their money out. What we need to do is to put in place measures that would allow them to get their money easily or move it out as when due. In a situation where regulatory impediments prevent foreign investors from moving their funds out, such investors would come back. Be that as it may, we still need to encourage domestic investors because they are more likely going to be stable. If you look back at what happened in the market, it is not only the foreign portfolio investors that left, everybody left. Everybody crashed out. What we are trying to do is to encourage investors to come back. It took sometime before retail investors came back to the market. Foreign portfolio investors are the first to come back. Since they came back, they have been able to get over 80 per cent of volumes of shares in the market.

    Has the market makers really impacted positively on the market?

    I think the market making initiative is still relatively new. I understand that four more market makers are coming. We are expecting an updated list of market makers. Even, the securities that are available for market makers are still being updated. Whichever way you look at it, market makers are relatively new. The securities lending that support the market is in progress. It is too early to measure the performance of market makers.

    You earlier mentioned the issue of having balanced investment portfolios. Can you explain better?

    There are various ways of having good and balanced investment portfolios. First, people should try and seek professional advice. Secondly, they should monitor the movements of their investments in line with the realities of the market. For instance, when equities market goes up, a lot of investors move in. When this happens, investors would like to exit the market. As they do that, rates would probably go up in the alternative investment portfolios. As investors, your best bet is to maintain some reasonable investment balance. What you should be more interested in is the credibility of your income to meet your needs. You have to consider your active employment years before you arrive at investment decisions. If you are much younger, let’s say you are in your 20s, you can afford to have investment portfolios of about 60 per cent in equities. Because what you are interested at that stage is an opportunity to grow your wealth overtime. If you are looking for classes of assets that can give you a healthy investment returns over a long time, returns that have a good chance of being higher than the cumulative rates of inflation, then the stock market is a very good place to invest.

    When you also consider that there are people at various stages of employment, we have people in the early 20s, 40s, people that just joined the workforce, they also have provisions being made for them in the National Pension Scheme as contained in the pension reforms Act. If you were to invest pension savings in money market instruments, there is the possibility that the returns may actually be lower than the rate of inflation in an inflationary environment. In real terms, you may actually have lost money. I always say that a big proportion of endowment fund, pension fund among other long-term funds be invested in the capital market. The reason is because the rate of returns always exceeds that of inflation. But like I said, the whole idea is striking a balance.

    To what extent do you think the retail bond trading will impact positively on the market?

    I’m cautiously optimistic about the issue. You need to recognise the fact that the bond market needs big players to grow. The market is dominated by corporate investors. Therefore, do not expect the level of retail activities you see on the equities side in the bond market. The bond market has huge potential, and should naturally be bigger and larger in volumes than the equities market. The main reason for creating retail bond market is to enable investors to enjoy free entry and exit. In the past, there were individuals who had bonds (primary offers) and were unable to exit the market. They bought these bonds when they were issued as initial subscription, and could not get an outlet to exit the market. Before now, bonds were not only being traded at Over-The-Counter (OTC) platform, but in large volumes. Then, the only outlet available was the corporate end of the market that attracted larger and high-volume investors.

    The advantage is that if I subscribe to Lagos State bonds or Benue State bonds and I buy N1 million or N500,000 worth of bonds, I can only sell under that platform. That would encourage me to buy again when any state government rolls out its bonds for corporate organisations. Nobody wants to be locked into investments where there is no way out.

    Now that the retail bond market has been created, people can buy bonds at the retail end of the market. Even at that, people should not expect huge growth from the market compared with wholsesale bond trading market.What I’m saying is that we should not be over optimistic about it in our expectations of the market because we need to recognise that the bond market is not predominantly a retail market anywhere in the world.

    It appears women have been crowded out of the financial services sector, especially in the area of giving higher responsibilities. What is your comment on this issue?

    This is something I’m passionate about. I do not think that marginalisation of women is limited to the financial industry, it is all over. In the business and employment worlds, women have been marginalised from time immemorial. There was a time it was not lawful for a woman to own properties. Experience has shown that in most cases where women have been given opportunities to function, they have shown what it takes to excel. I’m gladdened by some of the initiatives that the Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, spearheaded to ensure that there are more positions for women on boards of the banks. The Deputy Governor Services (DGS) recently talked about financial inclusion for women. Rather than discriminating against women on the boards, we need to give them opportunities to function.

    Before we look for the next man for the job, we need to compare the number of qualified men with that of qualified women with open minds. You would be surprised that there a lot of qualified women. Before a woman can get to a position of authority, she has faced a number of challenges that a man has faced or more.

    Can we say that the CBN Governor has bailed out women?

    CBN has not bailed out women, rather it is trying to champion the cause of women. I do not want to look at it from the point of numbers. Like I said, do not limit it to one sector. Generally in the business, employment, financial and industrial worlds, we need to ensure that the number of women at the head increase because nobody has been able to show me that women are inferior to men intellectually or capacity wise. Findings have shown that the ratio of men to women is 50: 50. From Assistant General Manager (AGM) to Managing Director (MD), the ratio becomes 1 to 50. Won’t you wonder what is happening? What I’m saying is that the proportion of women at the apex should reflect the proportion of women in the entire organisation.

    Can Nigeria achieve the goals of Vision 20: 2020, given the fact that enough steps have not been taken in this regard?

    To achieve the dreams of Vision 20: 2020, we need to address political problems. We need to place emphasis on unity. As long as we are not united, we cannot trust each other. We would be working against each other, rather than working together. There is no way we can achieve the objectives without unity. We need to understand the fact that we cannot go far, if we do not deal with the problem of corruption. We keep paying lip service to the fight against corruption. Corruption permeates every facet of life.

    If I have a project and cannot be sure that the fund for the project would not be diverted, what is the guarantee that the project would succeed. If I have the plans to put critical resources in place, I cannot guarantee that qualified person would be put in a position as opposed to a favoured person. There is no transparency in the ways and manners people are selected for positions in both the public and private sector. That is another problem. Infrastructure is another problem. If we do provide necessary infrastructure, we would still have big companies moving out of Nigeria to neighbouring African countries. We need a radical change in the way we think as individuals and a nation to achieve the goals of Vision 2020.

    What are the areas of competence of UBA Trustees Limited?

    The company provides services to all categories of clients. Broadly, there are two types of trustees. First is the Public Trustees, which ensures that services such as collection of investment schemes and handling of public offers such government and corporate bonds are provided to investors. Others are holding trust on syndicated loans, and other similar structures designed to help companies raise funds from banks. Secondly, is the private trustee. This has to do with the issue of project financing, among other services. Of note is the fact that UBA Trustees has been providing quality services to clients since inception. The firm’s franchise dates back to 50 years ago, hence, we have attained leadership position in some key areas. These have created opportunities to boost skills, and develop upcoming professionals for growth. Also, the company is an active member of Association of Corporate Trustees, of which I’m the president.

    UBA has a holding structure, which allows it to retain some of its subsidiaries. What added-value has UBA Trustees brought to the group?

    In actual sense, UBA did not go for the holding structure. What happened was a unique kind of restructuring in the bank. Under the restructuring, the bank divested from its investment banking and assets management subsidiaries within the group. Those subsidiaries are now under the holding company known as UBA Capital Plc. One of such subsidiaries is UBA Trustees Limited. In terms of value addition, UBA Trustees made a profit of over a billion naira last year and has over N40 billion assets under its trust.

     

  • Imo to build relief market

    Imo to build relief market

    Imo State Governor Rochas Okorocha has said that a relief market would be built in Owerri to accommodate traders who had no shops at the Eke-Ukwu Market.

    Okorocha, who made the announcement when he paid an unscheduled visit to Eke-Ukwu and New Market in Owerri, promised to construct all roads in the markets.

    The governor also promised the traders that government would provide electricity, bore holes and street lights in the markets to boost their businesses.

    He said that with the construction of the relief market, street trading would be abolished in Owerri, since traders without shops in other markets would now be accommodated.

    Okorocha also told traders at the new market that government would re-roof the market before the rains set in.

    The governor admitted that street trading was a big problem in the state capital.

    He promised to supervise the election of the Owerri Market Traders’ Association, scheduled for next month.

    He said the two markets had been granted community status and that a liaison officer would be appointed to liaise between them.

    On waste management in the markets, he directed the traders to buy cellophane bags for the collection and disposal of wastes generated on daily basis.

    The governor said that a football competition would be organised for markets in the state , adding that a new bus and two million naira had been set aside for winners of the trophy.

     

  • The market fire could not kill

    The market fire could not kill

    Over the past few months it has become normal in Lagos to hear that buildings in public places, especially markets have been burnt. The rate at which this fire occur is becoming worrisome and it seems there is no end to such fire incidents. Each of these fires leaves in its trace deaths and destroyed lives. For those who hear in the news, you may not understand what it feels like to build from scratch, only to be sent back to the scratch again by one misfortune.

    Though when The nation Shopping visited the market after the sad incident, it was discovered that shoppers as well as majority of the traders were not affected. Only a few shops within the premises got burnt. These shops stocked mainly clothing for all ages, lace and jewelries, they are ten in number.

    A shopper Mrs Aina Adeoti was seen buying toiletries after she left the shops of the bureau de change malams who were all around the market, from the entrance to welcome shoppers as they walked in. According to her, “I didn’t believe this is the market that was spoken about in the news. I was expecting to see a picture like that of the ketu plank market which burnt down completely. This section where I am shopping from is not affected, traders here are having a filled day making sales and going about their usual daily activities.”

    Another trader Mr Calistus Okoye who would have loved to buy clothes for his children got disappointed when he found out that one of his customers is affected. However, he was left with no choice but to visit another shop which sells the same item. “I am happy I got what I wanted, though my customer is one of the fire victim, but Alade market known for what it is, is a place where one can be sure of getting desired items always”

    The displaced traders were found sitting helplessly in front of the unaffected shops discussing their ordeal. One of them known as Mrs Theresa Maduka said she is waiting for the next line of action. “I want to see what the market authority and the Lagos state government will do for me; I know how much I have lost in this fire. I still don’t understand why some few shops will get burnt in this very big market?

    Mrs Sulia Aminu is also one of the displaced traders who said she was short of words and confused as she is the bread winner of her family. “I sustain my family; my husband lost his job six months ago. As I speak now my family is looking up to me for their daily bread. What do I do now and where do I go from here? My entire fortune has gone down the drain.”

    A sympathizer, also one of the shop’s owner who was lucky not to be in the section that was raced down by the fire Mrs Naomi Osaghae, a plane crash victim of EAS 2002, gwamasa, kano said she is thankful to God for sparing her life and shop from the horrible incident. “I have always prayed to God not be a victim of any terrible incident since God saved my life from a plane crash thirteen years ago. I was here on Sunday after church service to chill my drinks for sale on Monday, I left the market at exactly 6pm, only to come here on Monday morning and found out that a section has been burnt down completely. It is so sad and I pray such will not happen again.”

    As part of the measures to stop a reoccurrence of such horrible incident, the electricity supply of the entire market has been temporarily switched off pending the time things will become normal, as it was noticed that the fire was caused by an electrically surge. However the market executive has agreed to put it on by weekend to help them make necessary repairs and changes.

    The leader of the market, Mrs Elizabeth Adenuga has also appealed to the government to rehabilitate the damaged portion on time to allow the traders return to the market.

  • Traders count losses at Ketu plank market

    Few hours after the Ketu plank market closed for the day last Thursday, traders rushed back to see their shops being destroyed in the raging fire, which authorities are yet to determine.

    The traders were roaming around the remnants of their shops and the remains of their wares.

    The effect of the disaster was evident everywhere as women held their head because there was nothing to be salvaged.

    Mr Ibrahim Musibaudeen starred to where his shop once stood, he lost goods worth N500, 000 in his building material shop, he had three other shops in the market and all were destroyed. He started the business about 30 years ago.

    Another trader said as at the time the fire started, nobody was in the market. He was in Ikorodu when he got a call about 10pm that the market was on fire.

    The Director, state fire service Mr Rasaq Fadipe complained about how some of the fire fighters were manhandled by the traders and also complained that the traders didn’t allow the fire fighters to carry out their duties effectively as they were roaming across the place. He further stated that if the traders had allowed the fire fighters to carry out their job effectively, some properties would have been saved.

    Mrs Adekoya Bolanle, a resident told The Nation Shopping that the fire started at about 9pm spreading fast to other parts of the community where the market is situated.

    Another resident, Mr Simon Arebah who described the incident as ‘sorrowful’said the fire razed some buildings but there was no report of death.

    According to shop owners, 500 shops, a mosque and two churches were burnt. They said the incident may have been as a result of sabotage.

    Alhaji Aliu Bello, chairman of plank sellers also said the cause of the fire is yet to be ascertained. He said it was speculated that the fire would have started from sparks from an electrical surge in the public power supply of the market.

    “Many traders apart from losing their wares must have also lost cash because here it is a common practise for traders to keep their money in their shops at the market.”

  • ‘Market sheds N350b within eight days’

    The capital market lost N350billion within eight days as Market Capitalisation dropped from N10.82trillion on February 28 to N10.47trillion as at March 5, this year.

    The development was the outcome of drop in prices of certain blue-chip stocks, which affected market capitalisation and the All-Share Index.

    Speaking on the issue, the Managing Director, BGl Securities Limited, Mr Sunday Adebola, said the market performance decreased to 16.5 per cent from its previous level of 20.41 per cent in February. He said the problem was caused by fall in prices of major stocks in the consumer goods segment of the Exchange.

    He said: “There has been a drop in prices of Nestle, Nigerian Breweries, Cadbury and Guinness in recent times. Nestle has fallen from its unit price of N1000 to N800, ditto Nigerian Breweries, among others. These are highly-valued stocks, experiencing a slowdown in trading in recent times.

    “Also, oil and gas stocks have experienced drop in values. One of them is Forte Oil. Because these stocks are highly valued, they cause a slight setback in the market anytime there is untoward reactions on them,”

    He said the companies released results that gave a kind of dividend yields to investors, while at the same time, affected transactions. He said the stocks are over-valued, and therefore needed corrections to allign with their respective fair values.

    He said the banking sector still accounts for 21 per cent of the market, while oil and gas takes 22 per cent, as is reflected in the sectoral index. He however said banking stocks like Ecobank Transnational Incorporated (ETI), UBA, Sterling Bank, among others, are still under-valued.

    “The reason is because the values they are trading in the market are still below their intrinsic values. Despite this, confidence is returning to the market going by the interest shown by local and foreign investors,” he said.

    On market markers, Adebola said the appointed firms have boosted activities in the market, explaining that the major market indices have increased since last year when they were appointed to improve transactions.

    He said the market would recover fully, if the growth level that started last year is sustained.

     

  • Market making: The gains, the risks

    Market making: The gains, the risks

    From optimism to scepticism, market making is at the heart of growing concerns about the prospects of the capital market, reports Taofik Salako

     

    Nigerian equities are setting new highs. With a full-year average return of 35.4 per cent implying accretion of about N2.44 trillion in capital gains to investors last year, a strong start this year has seen most equities rising.

    The stock market opened last week with a year-to-date return of about 19 per cent, indicating addition of almost N1.71 trillion in capital gains in the past two months.

    Beyond the fundamentals, one of the initiatives driving the market is the introduction of market making by the Nigerian Stock Exchange (NSE).

    The NSE introduced the market making initiative on September 18, last year with an initial portfolio of 16 stocks. Market making refers to the system of providing liquidity to securities through provision of bid and offer prices in the trading system of a stock exchange. A member of the exchange that undertakes the function of market making, is called a market maker. Market makers can be categorised according to the level of liquidity support they provide.

    A primary market maker is regarded as the foremost liquidity provider of a particular security, while the supplemental market maker acts as a supplementary liquidity provider.

    In April last year, NSE appointed 10 stockbrokers as primary market makers. They include Stanbic IBTC Stockbrokers, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/DunnLoren Merrifield, WSTC Financial Services, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers.

    Under the operating rules, stocks in the market making basket are allowed to witness maximum daily change of 10 per cent as against the maximum daily allowable percentage change of five per cent for the general market. From the initial 16 stocks that started the programme, NSE has continuously added new stocks in line with the overall intention to roll stocks trading above nominal value into the market making programme within six months.

    Forty-three stocks are in the market making basket. They are Flour Mills Nigeria Plc, Unilever Nigeria Plc, Royal Exchange Plc, Wema Bank Plc, Oando, Unity Bank Plc, Seven-Up Bottling Company Plc, United Bank for Africa Plc, Access Bank, PZ Cussons Nigeria Plc, Nigerian Bag Manufacturing Company Plc, Presco Plc and Ecobank Transnational Incorporated (ETI).

    Others are International Breweries, Lafarge Wapco Cement Nigeria, Julius Berger Nigeria Plc, Guinness Nigeria Plc, Dangote Flour Mills Plc, Academy Press, Fidson Healthcare Plc, Redstar Express Plc and Ashaka Cement Plc.

    Other market-making stocks are Skye Bank Plc, Zenith Bank Plc, Dangote Cement Plc, UAC-Property Development Company, Custodian & Allied Insurance, Sterling Bank Plc, Prestige Assurance Company Plc and FBN Holdings.

    There are also DN Meyer, Stanbic IBTC Holdings, Nestle Nigeria Plc, Diamond Bank, Dangote Sugar Refinery, Fidelity Bank Plc, Union Bank of Nigeria, National Salt Company of Nigeria (NASCON), Nigerian Breweries Plc, Transnational Corporation of Nigeria Plc, Airline Services & Logistics Plc, AIICO Insurance Plc, Guaranty Trust Bank Plc and UAC of Nigeria Plc.

     

    Advancing market

    development

    Chief Executive Officer, NSE, Mr Oscar Onyema, said the introduction of market making was a major landmark aimed at bringing back liquidity and depth into the market. He pointed out that all necessary structures and processes have been put in place to ensure the success of the initiative and reduce likelihood of infractions.

    He explained that stockbroking firms that were selected as market makers went through a rigorous process and met the minimum net capital requirement of N570 million, while the NSE also examined their compliance history and their operational capabilities.

    To further safeguard the efficiency of the market’s price discovery system, the basket of stocks for each market maker was enacted through a blind draw. Besides, operational guidelines for market making require market makers to disclose any corporate involvement, such as directorships or substantial shareholding above five per cent in companies in whose securities they engage in market making activities.

    “Market makers are required to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of market making business, to prevent the misuse of material non-public information. Market makers must not exercise voting rights in the companies in whose securities they make markets, nor intervene in the management of the company concerned, or exert any influence on the company to buy back such shares or back the share price,” the guidelines stated.

    But there are also privileges for market makers. Although all market participants are allowed to sell short, only market makers are allowed in the meantime to execute a short sale transaction, provided that they have borrowed the securities or have entered into a bona-fide arrangement to borrow the securities which will be available on the date of delivery. All other dealing members must have borrowed the securities before executing a short sale transaction.

    “No dealing member other than a market maker may execute a short sale transaction on the basis of a bona- fide arrangement to borrow the securities,” the guidelines indicated. Short selling or short sale is the sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller.

    “On the extreme, naked short selling refers to the practice of seeking to profit from an expected fall in the price of an asset by selling shares one does not own without borrowing, or making arrangements to borrow them. Naked short-selling is prohibited on the NSE.”

    Head, Broker-Dealer Regulation, NSE, Olufemi Shobanjo, said the operational guidelines are meant to provide market participants with a guide on acceptable conduct in relation to the new initiatives, adding that operators are still required to conduct their transactions in line with all relevant rules and guidelines of the Exchange and SEC.

    He warned that any contravention of the subsisting rules and regulations, as well as the new guidelines, would be sanctioned.

     

    Improving liquidity

    Many operators and investment experts said market making has impacted considerably well on the market situation. Chairman of Stanbic IBTC Holdings Plc, Atedo Peterside, said the introduction of market-making initiative has helped to boost liquidity in the equities market. He pointed out that daily trading band has doubled at the capital market.

    Managing Director, GTI Securities, Tunde Oyekunle, said the market makers will assist the market, as they could provide additional liquidity to ensure that stocks are priced appropriately.

    According to him, the stock market needs all efforts to jumpstart its recovery to win both domestic and foreign investor confidence.

    Similarly, investment advisor and economist, Sterling Capital Markets, Mr Sewa Wusu, described the introduction of market makers as commendable. He pointed out that they would increase competitiveness and efficiency of the stock market.

     

    Building up another bubble?

    But there appears to be growing concerns about the operation of market makers. Investors, especially minority shareholders who are still struggling in the aftermath of the recent meltdown and market pundits, are worried that the pricing trends for market-making stocks could be laying the foundation for another steep decline.

    General Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr Adebayo Adeleke, is worried that the operations of market makers could lead to another bubble and undermine the long-term recovery and stability of the capital market.

    According to him, the operations of the market making appeared to be unduly influencing the market values of selected stocks.

    Adeleke, who sits on the board of many quoted companies and serves on several statutory corporate committees, noted that market-making operations could lead to another burst due to what he described as lack of consideration for fundamental strengths of some companies.

    He said by allowing some select stockbrokers to be “pushing share prices” of selected companies, the market making function could undermine the price efficiency function of the market forces.

    “It’s more of a manipulative process; they should allow market forces to dictate the share prices, not market makers. They are inflating the balloon again, and we must sound the alarm before any burst,” Adeleke said.

    Another shareholders’ group leader, Alhaji Gbadebo Olatokunbo, expressed concerns that some stockbrokers might be hiding under the guise of market making to arbitrarily increase prices of stocks without any visible fundamental changes.

    Citing a particular stock that recorded nearly 350 per cent gain within a short period of being designated as a market-making stock, Olatokunbo said the steep price movements were not justifiable and called on market regulators to take closer look at the market making programme.

    “Now is the time to review the operations of market making so far and apply some cautions. Some share price movements are questionable and both SEC and NSE should investigate how ethical and fundamentally sound were some price gains,” Olatokunbo said.

    Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane, weighed in with introspective caution of an analyst and market insider.

    He cautioned that traces of pumping and dumping are raising doubts about the true impact of market making, reiterating concerns that had been expressed by several stakeholders.

    “Market making activity must be closely watched to ensure an asset bubble is not built up again,” Rewane said.

    He, however, ruled out any immediate threat of assets bubble due to share pricing mechanism so far. According to him, though there were echoes of asset bubble, Nigerian equities are still far from any such depression given the earnings outlooks of companies.

     

    Forestalling the risks

    The NSE appears also not to be unmindful of the inherent risks in unbridled market-making. Few days to the expiration of the stated six-month period for rolling al stocks trading above nominal value unto the market-making basket, NSE has only included some one third of eligible stocks. For a market that had been bedeviled with share price manipulations and criminal collusions, market making exposes the market to subtle maneuvering unless there is adequate and efficient regulatory framework to forestall possible abuses.

    The management of the NSE said it was ready to apply the maximum sanction as deterrent to erring market maker. Onyema has warned that the NSE may withdraw the operating license of any erring market maker. Besides, the NSE would deduct 10 per cent of total value of transaction engaged in by a defaulting market maker in the case of a less-impact breach.The Exchange has also expressed willingness to learn from the process and review the modus operandi as the dynamics dictate. “We are going to roll out over a six months period. During that period, we are going to learn a lot,” Onyema said.

    But the investment profile of the market and the market makers also portend higher risk of externally-induced meltdown. While the large stake of foreign investors, averaging some 60 per cent of turnover, indicates attractiveness of the market to foreign investors, this could also exacerbate decline in case of negative counterbalance effect from global economic challenges especially from the United States of America and Greece-induced Eurozone.

    Rewane cautioned that there might be little headroom for the market to manoeuvre if United States debt ceiling is not avoided this month and Eurozone crisis comes flooding back. With foreign investors accounting for nearly two-thirds of turnover on the NSE, slight or massive sales orders from foreign portfolio managers and investors-either due to profit-taking or deficit financing and rebalancing, would have corresponding effect on the market.

    “However, a strong dominance by foreign investors will make the local market susceptible to volatility from the global financial market space. Our bond and equity markets direction may then be strongly influenced by global events,” Managing Director, Investment One Financial Services Limited, Mr Mr Nicholas Nyamali said.

    Some of the most active brokers and market makers have foreign affiliation or ownership. In the event of a downtrend, market making, which has orchestrated the uptrend with its 10 per cent headroom, could also exacerbate the downtrend. Market authorities need to show greater sensitivity to these subtle undertones and take necessary steps to reassured nervous investors.