Nigerian Stock Exchange. Market Makers and the future of the stock market.
October 10th, 2008 Ogbuotobo Chuks || chuks@stockmarketnigeria.com
Few days after the announcement by the ruling body of the NSE, investors are still anxiously waiting to see the outcome of the proposed emergence of the Market Makers.
Inspite of the press release by SEC dissociating itself from the emergence of 6 banks as being approved by NSE, there are indications that a Memorandum of Understanding (MOU) would be signed today. This is being carried out after a purported meeting held with Members of the Council of the Nigerian Stock Exchange (NSE).
The N600 billion to be injected to an extent would definitely alter the downward trend that has bewildered the Nigerian market over that last 6 months in the opposite direction. The other big question is how far this would go when one compares the to be injected amount to the amount that has been lost by investors. That is to say what can N600 billion possibly do in a market that has lost over N3 trillion.
Although there is no limit to the number of market makers that can play in the market, how many companies are actually willing to get involved in this feat? Would SEC’s refusal to recognize those that have indicated interest in providing funds actually delay the take-off of the scheme? Would the market makers that would finally emerge be able to influence the market to the level it was before even without the presence of foreign institutional investors?
The questions keep on coming but the answers seem to be far from most investors. All we have are bits of clues here and there coupled with vague strategies that seem to be like more of a trial and error experiment.
As my father used to say when i was younger, “Only time would tell”.
(2 votes, average: 2.5 out of 5)
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I think this is an idea that came about a bit late. Market Makers ought to have been encouraged to enter the NSE a long time ago. SEC refusing to recognise them is a bit like playing the ostrich.
There are a lot of things fundamentally wrong with our stock market, no doubt the liquidity crunch contributed a lot to the downward spiral, but other factors such as late release of certificates, unnecessary delays in verifying/dematerialising certificates as well as integrity issues led to price spiralling that could not be justified either by past performance, future performance or demand/ supply.
If you are close to a lot of the operators in the market you would be appalled at the reason for so many price increases. The original “correction” in the market was exacerbated by the liquidity crunch in the West which led so many of their portfolio investors to try and cash in on their investments here.
I’m even afraid that unless the professional and integrity issues are properly addressed, we may still have problems with these market makers. All the market makers are listed on the stock exchange; are the chinese walls sufficient to ensure that they do a professional job in their market making functions?
It might seem unfair for me to react seriously to this plan. I want to however say that we are likely to experience upswing as time presses for December. The short fall is naturally when advanced decline lines are not clear in NSE…there is not enough actions out there besides the banks.
Our market will bounce back I can assure Nigerians but we must do certain things right. Liebur is showing alot of activity and I give Benanke some credit for it. The paper stub and note that he offered life line sent Americans grappling with the oversea trade…this is US feds staging a backroom comeback through transborder trade and forex and through medium to overweight size companies based oversea. They will be will looking to annually close for me and I expect dollars to end where it began/US. I think GE is one of them, there is Travellers Cheque, then there is Western Union.
I can offer Soludo and the Nigerian this advice…block this migration of foreign current heading to that Nigeria. Sink by matter of rule, any bank transaction without the Nigerian Naira. Western union is offering Nigeria a short lease of life by lowering post fee for money transactions. The Euro and the dollars are flooding our market and there is a lot of ‘opacity’.If they cannot buy into our Naira…they have no business in Nigeria. If you cannot transact with the Nigerian unit of exchange, you should not be in the Nigeria business. Foreign currency has a knock on effect on any local unit of exchange when traded together.
The second problem is that Nigeria put too much emphasis on the dollar. I think such attempts usually disaffect local investors, sending thier confidence down hill. If Nigerian Naira recover from its current importunity, it will serve to demonstrate that we have serious problem of inflation, that has accumulated volume which does not equal profit…in essence stock prices over way priced. The wholesum effect of such quadmire is weak buying power in terms of NAIRA with medium to low net profit.
What the market is basically doing is returning to its useful levels as such it naturally wipes profit. We just have deal with and we have enough window to do so.
Introducing this 600 billion is a good idea but it is much more dangerous. The six banks that are qualified to do this would witness the following…a high demand of collateral from CBN as a clearing bank
2, a high demand of regulation from probably governement oversight committee
3, open ended accountability… overnight lending and a two dissatisfactory end note
4, given the current National deficit CBN might require additional collateral
from these banks…which naturally lead to spin offs in asset. On teh shortest possible note, what CBN is not directly saying is that they expect agents and thier banks to throw ‘ethic out of the window’. Ordinary level term auction usually mean ‘reverting’ or in this case reverse auction. Big sale, Big names, big money and repositioning…
We are talking inflation and inflationary prices driven by the neccesity to sale. High price without speculative prefference is deepfreezing a market. Then there is no direction or in our case misdirection. Money injection is not the answer to any economy especially Nigerian.
Soludo ought to be patience and wait till Q1 09. Remember money velocity as the rate money in any economy. When you reduce the banks as he has done, you eliminate uncertainty and you try to copualte which is what he has done. The question is how exactly do you get a formula for the two leg process?. That is, how do form a eguilibruim?. Market prices are by circumstance expected to lack definition, he has to be patient as a man from investment banking. I expect a further review of commercial lending rights and of course buy back programs. Further he will discourage non performing banks from trying new stuff…besides there is compound derivitive that would naturally force a self imposed excision from NSE. Some of them ‘guys’ are just too thin and encouraging 6 banks over the rest is empowering the darwinist.