Operators Move to Revive Securities Lending, Market Making
Goddy Egene
The Capital Market Committee (CMC) is making fresh moves to ensure that securities lending and market making initiatives introduced by the Nigerian Stock Exchange (NSE) in 2012 are working.
Securities lending is the 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.
On the other hand, market making 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.
Although the two initiatives have the capacity to improve the market performance, they have not been effective as expected.
The Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo had on Monday attributed the failure of the initiatives to liquidity challenges facing the capital market.
According to Gwarzo, the CMC has inaugurated a committee that would commence a study on how to address liquidity issues on 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 did 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,†he said.
He explained that the committee will look at the entire spectrum of liquidity in the market, what will be done to address some of these challenges and how the outcome their findings will be implemented.
