MarketWatch

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Proshare News and Analysis
5 Primary Market Makers appointed on Market bailout
Posted Tuesday, October 7, 2008


PETER OBIORA

Proshare NI

October 07, 2008 at 16.00 GMT

Five Primary Market Makers has been appointed as part of the bailout plans for the Nigerian Capital Market. A source close to Proshare NI in the meeting held at Nigerian Stock Exchange (NSE) made this confirmation today in Lagos Nigeria.

The bailout plan is part of the measures being proposed to help halt the dwindling fortune of the Nigerian Capital Market.

It is being expected that Private Funds would be injected to help bailout the Capital Market.

The Federal Government (FG) two months ago intervened in the market to halt its dwindling fortune, however, up until now; nothing seems to have happened to alleviate this trend.

Recently, the United States Government (US) had come to a conclusion to inject $700 billion to halt the countries ailing financial health.

This is also coming on the heels of the FG aborting plans to introduce a Stabilisation Fund; which would ensure liquidity in the Nigerian Capital Market.

As at the time of filling in this report, Proshare NI could not get much detail in respect of the meeting by Regulators in the Capital Market on the internal bailout plan proposed to help the FG’s intervention on the market.

However, Regulatory Authorities has defined Market Makers as any company that has up to N2.0 billion Capital Base.

In the same vein, the Quotation Committee of the NSE today in Lagos Nigeria sat to deliberate on listing of 15 companies on the Floors of the nations Stock Exchange

Our source confirmed to Proshare NI that most of the companies got the approval to list mostly Rights Issues and supplementary listing.

“Almost all the companies got approval to list its shares on the Floors of the NSE, but I wouldn’t tell you the number” the source affirmed.



Tomorrow October 08, 2008, Multiverse Resources Plc would be listing 3.0 billion Ordinary Shares of 50 Kobo each at N1.80 Kobo per share

[olusolakemmy]

Originally Posted by anekwlc

One thing I have seen that we know how to do well is negative critisizm. Most times i begin to think of what makes us think that our ideas are better if not that we are looking at it from what is good for us not the country. If not because of Soludo's consolidation policy, I wonder where our banks will be in this present world economics crisis. I think he is doing very well irrespective of how it is affecting you. There is global economic crisis and each country is expected to manage their own based on their environment [their people, atitude, corruption, patrotism, infrastructure etc] . It is difficult to have policies work well with people like us that are just self centered and does not think of the country in General.

anekwlc,

do u know how zimbabwe found itself in this present situation?
because mugabe was successfull in killing an act of criticism and made it a crime to speak against his goverment.

there can never be progress where there is no criticism.

my post that you responded to ackowledged the fact that soludo was praised because of the success of consolidation and he infact won awards outside nigeria for that, But check it out three years after, STERLING BANK CAME UP WITH A DRAMA, a drama that shld not even be mentioned in the public, an issue that is assume by everybody as been settle, the issue was revisited three years after and innocent soul are paying with their hard earn money and the great soludo approved it.

i am not seeking an insulation for myself against the global economic crisis, what i said is that in good and bad times, let us have a consistent policy

is this too much to sk for?

Ask yourself a sincere question, are we really really sure about the credibility of all the banks? that everything they tell us is absolute true?
if your answer is yes, then ............ and if ur answer is no, then my criticism of our financial regulatory system is a constructive one.

[zainabusman]

Originally Posted by Michael

I am not sure even Madam knows what she is going to come out with tommorrow. I don't think Prayers alone will do. This type goes out, but by Months of Prayers and Fasting. An Overnight Rush Job won't do.

I concur. Even if by some miracle, the market rebounds in the next few days it will not be because of what madam did. Afterall, we have been on a free fall since Sept 4th. One full month. So frankly we are due for a change in fortune.

While i commend the CBN and other regulators in attempting to stop the decline in our capital market, i think they should take it easy. The reality is that the world at large is facing a 'financial tsunami' and since we are part of the global village we are not immune. Fortunately for us all we are not as leveraged as the Americans.

Our government should be more concerned with fixing our infrastructural dificiences so that we can become a competitive economy.

What we need in the capital market is more robust regulations. We need more disclosure on insider trading, better disclosure in accounting and overall better corporate governance. The kind of thing that happenned with Sterling bank is unacceptable.

Only God knows how this tsunami will end. What is happenning is unprecented. Confusion all over the place with asset prices falling by the day.

For those thinking of real estate investment. I urge caution. Real estate in Abuja & Lagos in my view are overvalued. The day of reckoning might not be far off. Today in Lekky Phase 1, a duplex goes for N80 million and above. We are talking $700,000. That is a lot for an area with such significant infrastructural difiences. I can imagine the kind of house one can buy in the UK or US with this kind of money. Caution is definetely advised.

As for our dear NSE, unfortunately it appears despite the many months of correction, more might still be required. The 100,000 units rule has kept some securities at high valuations relative to the market. Only the majority of banks look fairly priced. The rest of the market might still need more correction. Not very good news i guess.

[Michael]

Originally Posted by zainabusman

Unless the DG has the funds to buy off all the stocks on offer, nothing will change. Liquidity is not there.

In my view they should just allow this market to find its level. It cant get to zero or can it?

With the 1% max fall allowed Zero will be impossible. When a stock price crosses below the N1.mark, It cannot drop by 1 kobo without breaking the 1% max drop.

[Michael]

Banks apply for debts rescheduling

SEVERAL banks have applied to the Central Banks of Nigeria (CBN) to have some of the debts they incurred as a result of the downward trend in the capital market rescheduled.

According to a circular issued by the apex bank, the banks recently indicated their desire to reschedule some of their capital market-related exposures.

Their desire, the circular, signed by the Director of Banking Supervision, O. I. Imala, was informed by the strict consideration of Section 2.3 of the Prudential Guidelines, which provide the grounds for reclassifying non-performing facilities.

"Given that the facilities should have been structured for a much longer period from the beginning, the CBN is, by this circular allowing such facilities to be restructured for a longer period between now and December 31, 2009," it stated.

It stated that the forbearance is specifically for only loans made for the purchase of shares in the Nigerian Stock Exchange (NSE).

Meanwhile, the CBN has reviewed upward prices collected for foreign exchange forms.

According to another circular signed by the acting Director, Trade and Exchange Department of the CBN, H. A. Salako, dealers will now pay between N1, 500 and N3, 000 per booklet for any of the forms used for the foreign exchange operations.

The revised prices became effective October 1, 2008.

[Michael]

Senate orders audit of Federation Account
From Azimazi Momoh Jimoh, Mohammed Abubakar and Terhemba Daka, Abuja

A SOUND check on the Federal Government's fiscal probity claim may soon be under way as the Senate Committee on Public Accounts yesterday directed the Auditor-General of the Federation, Mr. Robert Ejenavi, to audit the Federation Account and the financial state of some public agencies.

The affected agencies are the Nigerian National Petroleum Corporation (NNPC), the Nigerian Customs Service (NSC), Federal Roads Maintenance Agency (FERMA) and the National Emergency Management Agency (NEMA).

Chairman, Senate Committee on Public Accounts, Ahmed Lawal, who disclosed this yesterday at the National Assembly Complex, said that his panel had concluded plans to investigate the management of funds released for the Universal Basic Education (UBE) programme nationwide.

Meanwhile, the All Nigeria Peoples Party (ANPP) has faulted government's claim of prudence in handling public funds leading to the recovery of over N400 billion unspent capital budget from ministries, departments and agencies (MDAs) as made by President Umaru Musa Yar'Adua in his Independence Day broadcast.

In a statement yesterday in Abuja by its National Publicity Secretary, Emma Enekwu, the party said the funds were unspent because the Federal Government failed to execute projects the money was allocated.

The ANPP also declared that the Yar'Adua administration was clueless on solutions to the nation's infrastructure decay.

Lawal told reporters that "we have asked the Auditor-General of the Federation to audit the Federation Account. We want to examine the inflow and outflow of funds into them from all sources.

"When he submits his report to us, then we will be able to know how much government agencies contributed and drew from the Federation Account. We can then go ahead with our investigations."

On the UBE fund, he said the Upper House was looking into the books of the agency even at the state level. "We are going to investigate the UBE across the states and the Federal Capital Territory (FCT). We intend to travel to the states to see what they have done with the funds."

The ANPP said the unspent money would have had more value if it had been used to repair dilapidated roads, provide medical facilities and implement policies that would enhance the educational system.

It upbraided the administration for saving such money while the citizens have no access to basic amenities.

Also, a group, Human Rights Writers Association of Nigeria (HURIWA), has urged the Federal Government to ask the United States (U.S.) government to publish names of Nigerians implicated in bribery scandals in America.

The U.S. government is prosecuting its citizens involved in the high profile crude oil scam where some Federal Government officials and employees of the NNPC have been fingered.

One of the bribery scams involved $180 million Liquefied Natural Gas (LNG) project executed from 1994 to 2004.

In a statement yesterday in Abuja, the group criticised the government and its U.S. counterpart for allegedly conferring undue privileges on the Nigerians implicated in the serial bribery scandals "by refusing to name, shame and prosecute them in Nigerian courts for these economic crimes against the state and people."

National Coordinator, HURIWA, Emmanuel Onwubiko, said: "The continuous refusal of the Nigerian Government through the office of the federal Attorney General to officially request for the names of these Nigerian officials for subsequent prosecution by the Economic and Financial Crimes Commission (EFCC) may be interpreted in international and local quarters as a confirmation of the allegations by a cross section of critics in Nigeria and internationally that the current administration has systematically weakened the operational capacity and capability of the EFCC and that the current administration is unserious and not committed to the much publicised rule of law and the anti-graft war."

[Michael]

Interbank rate dips by 0.33 per cent

AS a result of the policy that banks' cash reserves should be reduced to give room for liquidity in the market, the interbank interest rates came down to 11.75 per cent on average last week from 12.08 per cent the previous week.

The interbank market was hit by a cash shortage in August and September, leading to high interest rates.

The regulator cut the interest rates to 9.75 per cent from 10.25 per cent, Cash Reserve Ratio (CRR) to two per cent from four per cent and liquidity ratio to 30 per cent from 40 per cent to give room for liquidity in the market.

Central Bank of Nigeria (CBN) Governor, Prof. Charles Soloed, attributed the liquidity squeeze to the withdrawal of funds from the country by offshore investors in response to the global financial crisis.

But Soloed was quick to explain that the nation's financial markets were currently sufficiently liquid and would require no further intervention.

In a related development, the Open Buy Back (OBB) the flat rate at 9.75 per cent, same as the apex bank's Monetary Policy Rate (MPR), overnight fell to 12.50 per cent from 13.50 per cent, while call remained at 13 per cent.

The market remained liquid, last week, despite the borrowing by some banks to boost their accounts for the financial year end (FYE). Banks are at discretion to choose any period of the year for their FYEs.

Bankers said with the access to the regulator's repo window by retail banks, the rates were expected to hold stable next week, unless there was a major outflow of funds.

The apex bank mopped up N65 billion from the financial system by issuing fresh treasury securities through its Open Market Operations (OMO) last week.

There was a recovery in the recent trend in money market activities as short tenored rates firmed up at the close of the week

The official exchange rate of the naira as released by the CBN remained N116.06 to a dollar.

Meanwhile, Soludo said, at the weekend that core inflation in the country was about 3.9 per cent, which he said was an acceptable level, adding, "Core inflation currently at 3.9 per cent is something we can deal with if the fundamentals are right."

Dealers said the naira is expected to rebound next week when the central bank resumes dollar sales at its twice-weekly auctions.

Meanwhile, heavy demands by corporate organisations for the United States currency, the dollar, made the naira to lose value at the interbank market at the close of last week.

The naira fell to N117.76 to a dollar on the interbank market at the weekend from N117.72 per dollar on Thursday, losing .04 point.

The holidays also affected the injection of dollars by major oil multinational companies who used to come to the market to exchange their dollars for the naira to enable them fund their local operations.

"Both the holidays and inability of the majors dried up the dollars and made the naira value to come down, a dealer at the market said.

The naira had closed the market at 117.67 per dollar on the back of month-end dollar sales by some oil multinationals.

[hispy99]

Market Makers in the NSE - Why did it take so long?
Posted Wednesday, October 8, 2008

As one of the Nigerians in the Diaspora with some knowledge of the dynamics of the Capital Markets. I am regularly asked what types of investment instruments are available to them in Nigeria. My advice is usually to invest in the stock market. However, majority of them have expressed concerns about not being able to buy or sell their stocks when the need arises.


On January 15, 2007, I wrote an article about Cadbury Nigeria Plc shares being on a rebound on the Proshare website. At the time the article was published, the stock was trading at N35.58, and heading higher. Although the NSE daily tapes indicated that an average daily volume of about five hundred thousand shares traded, several investors who read the article and wanted to buy the shares were unable to do so, because of the unavailability of the shares in the open market. Pursuant to my discussion with a broker as to why investors were unable to find Cadbury shares, I was informed that most of the reflected daily volume trades were “cross trades” and not exchange trades. I was also reminded that investors encountered the same unavailability problems last year when they tried to buy the shares of BCC at N15, after the company made some pertinent pronouncements.


Cross trade is a practice where buy and sell orders for the same stock are offset without recording the trade on the exchange. This occurs when a brokerage firm executes both a buy and a sell order for the same security from one client’s account to another where both accounts are managed by the same portfolio manager. For example, an investor who has an account with brokerage house A wants to sell 1000 shares of Cadbury, the 1000 shares are sold to another investor who has an account with the same brokerage firm without giving an opportunity to investors registered with other brokerage firms to participate in the bidding process to buy or sell the shares.


In most developed markets, cross trades are seen as a way for brokers to rip off investors. When trades are not passed through the exchange, there is a good chance that an investor did not get the best price. In most developed exchanges, cross trades have been outlawed. Although cross trades have its advantages, there are also several disadvantages. For the individual buying shares through a cross trade, they may pay less brokers commission and might avoid some of the stringent NSE fees, because the shares are not exchange traded. However, cross trades leave room for stock price manipulation. Stocks trading in the NSE need to be democratized to enable knowledgeable investors execute certain trades directly without using a broker as an intermediary. I am by no means advocating the extinction of floor brokers and brokerage firms.

However, I believe it is time for the NSE to gradually introduce the types of stock trading system practiced in most developed stock exchanges. For example, there should be “Market Makers” who are available to buy or sell shares to investors whenever there is the need.

Who is a Market Maker?

A Market Maker is a bank or brokerage company that stands ready every second of the trading day with a firm bid or ask price for each stock. This is good for investors, because when an investor places an order to sell 1,000 shares of Cadbury for example, the Market Maker will actually purchase the stock from them, even if the Market Maker does not have a seller lined up. Doing this is literally "making a market" for the stock.


Whenever a stock is bought or sold, there must be someone on the other end of the transaction. If you want to buy 1,000 shares of Cadbury, you must find a willing seller, and visa versa. It is very unlikely that you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. How then can investors buy and sell stocks at any given time?, this is where a Market Maker comes in.

How do Market Makers make their Money?

Market Makers must be compensated for the risk they take in buying shares from investors when there are no actual buyers or investors willing to buy the shares of a specific company. To prevent the market maker from literally holding the bag as the saying goes, he or she will need to maintain a spread on each stock purchased. Using our Cadbury shares as an example, if the market maker purchased Cadbury shares from an investor at N33 each (the ask price), the market maker may probably offer the same shares for sale to another investor at N34 (bid). The difference between the ask and bid price of N1 translate to a significant chunk of cash for the market maker considering the fact that he is trading millions of shares each day.

Conclusion

It is imperative for the NSE to introduce the “Market Maker” system, to remove the notion that investors are unable to buy or sell shares on demand, or that the prices of shares are being manipulated by brokerage firms. Additionally, the market maker system will ascertain that investors who want to purchase the shares of specific companies will find the shares as opposed to brokers telling investors that shares of a particular company are not available for purchase. You can share your thoughts on this contribution by Chukwumah Biosah by sending us an e-mail to info@proshareng.comand indicate in the subject ‘publish’ or ‘private’.




Immediate Reaction by a concerned subscriber (without prejudice) on December 14, 2007


The article published on the proshare website on the subject of market makers refer - Proshare Nigeria - Sign In to Proshare


I think introducing market makers at this time will be a mistake because it will introduce another level of bureaucracy and avenue for the "big boys" to further manipulate the market. We have to be careful what we advocate for introduction into the market because we have to look at the peculiarity of our country and market and adapt or evolve solutions or processes that will take into considerations these peculiarities.


Just because a car that runs on diesel does more miles per litre than one that runs on petrol does not mean that the next time you go to the filling station you should fill your car that is designed to run on petrol with diesel. You need to modify your engine or adopt a new one in order to get the benefit of diesel otherwise you mess up your car.


I think at this time it is more imperative to improve and perfect the processes that we have in place, like issuing electronic certificates/allotment so that the issues of certificates being delayed or lost in the post is eliminated. This also partly deals with the issue of delays in certificate verification before sales. I mean my certificate is delayed or lost in the post, it takes forever for it to be verified after I eventually get it, how can the shares be available for sale.


Let everybody who wants to trade on the exchange or buy shares mandatorily open a cscs account with a broker if itʼs their first time and subsequently include the cscs account details in every application filled for a PO. If you already have one just fill it out in the form. You can have multiple accounts with multiple brokers just like you do with banks. Just like everybody who wishes to put their money in a bank has an account to run the money from. But unlike a bank account, it does not go dormant if you do not touch it for years.


That way, we can all kind of trade by ourselves (sort of) I can give instructions to my broker to credit a cscs account with a certain amount of a certain share once I have agreed with that individual, if I do not find anyone I can agree with personally, I tell my broker to sell for me on the exchange.


I know this is happening at the moment but the % is just too minute and quite a lot of people do not have electronic shares account.


The good thing about it is that once your shares hit your account, it is in a saleable form, no need for re-verification that allows the big boys to hold one to ransom while they clean out.


It should be mandatory that everybody has an electronic account.


Also the issue of regulation should be taken seriously, the easiest part of regulation is making or drafting the laws, the most important is enforcing the law. The only reason people comply with laws is if there is a consequence to breaking it and not because the law exists. I am sorry to use a foreign example but itʼs the only one that comes to mind at this time. For example in the UK, there are bus lanes in some major cities, these lanes are clearly marked and as the name says its only meant for commuter busses alone, no matter how much traffic there is on the read, you will not see any unauthorised cars on the lane, why? Not because Brits are more law abiding, but because there are bus lane cameras that will capture you on the lane and you are automatically issued and sent a fine.


Proshare Nigeria - Sign In to Proshare

[hispy99]

Is it time to buy some listed stocks in the NSE?
Posted Tuesday, October 7, 2008

The downtrend in the NSE has been on for approximately five (5) months, and even with all the measures the federal government and the regulatory agencies have taken to stall the trend, the market continues to match to its own drum beat.
Although the NSE implementation of the 1% maximum decline has slowed the deterioration, the NSE index is down 20,411 or 30.8% from its 52 week high of 66,371.2. Since September 1, 2008, after the index had 4 days of gains, the index succumbed to selling pressure and has persistently declined losing 3,254 or 6.6% in the last twenty-three consecutive trading days as shown in the graph.

Additionally, market internals continue to look very weak as declining stocks continue to outpace advancing stocks. In the most recent 15 trading days, daily advancing stocks averaged 10 stocks versus 65 declining stocks.



The downtrend in the Nigerian capital market has negatively impacted the stock prices of majority of the listed companies in the Nigerian stock exchange. As a result most of the stocks are trading below their fair values, and it might be a good time to start accumulating the stocks of some these undervalued companies.
Stock selection Process:

Normally, I utilize technical and fundamental analysis in making my stock purchase decisions, but because the market has been in a severe downturn for over 5 months, utilizing technical analysis might be counterproductive, since most of the stocks in the NSE are trading below their relevant technical indicators (i.e., cumulative simple moving average, RSI, Fibonacci targets, ect). For examples, as shown below, the technical review of intercontinental, Zenith, and Oceanic Bank reveal that they are all trading below their relevant CSMAs’. Therefore, an investor that bases their stock buying decision on only technical analysis might be dissuaded from buying any of the highlighted stocks.

However using fundamental analysis and calculating the fair value of a few bank stocks based on the constant growth and earnings multiple models revealed that although these stocks are technically very weak, fundamentally some are very attractive at their current prices.

Fundamental Analysis:

Using the constant growth and earnings multiple models, we calculated the faire value of the following bank stocks: Access Bank, UBA, Zenith, Diamond Bank, Afribank, Intercontinental bank, First Bank Nigeria Plc, and Bank PHB. The analysis revealed that as of October 3, 2008, with the exception of Zenith Bank, all of the analyzed stocks are trading below their fair values as shown in the schedule below.

Banking Closing Price Price by Constant growth Model Price by Earnings Multiple Combined Average Price Variance btw Fair Value & Stock Price % Variance from Fair Value


Access 11.52 11.52 13.57 12.55 (1.03) -8.17%
Afribank 21.56 20.83 30.06 25.45 (3.89) -15.27%
Diamond 11.40 11.43 11.86 11.65 (0.25) -2.10%
FBN 27.49 27.27 32.72 30.00 (2.51) -8.35%
Intercont. 24.49 25.00 27.78 26.39 (1.90) -7.20%
PHB 16.25 19.50 19.95 19.73 (3.48) -17.62%
UBA 25.20 25.00 33.22 29.11 (3.91) -13.43%
Zenith 36.30 35.71 28.55 32.28 4.02 12.45%


As shown in the schedule, the most of the stocks in the sample have declined between 2.1% t o 17.6% below their fair values with a combined average decline of 10.3%.

A cursory review of some of the sample stocks are highlighted below

ACCESS Bank:

Technically, Access Bank is has very low relative strength. At October 3, 2008, the 20 day and 50 day cumulative simple moving averages were N12.52k, and N13.70k respectively. Based on the technical indicators an investor will not buy Access Bank. However, based on the most recent financial statements, we determined the earnings multiple at 13.59%, dividend growth rate at 3.03%, dividend payout ratio of 67.1%, and retention rate of 32.90%. Using the constant growth and price earning multiple models the fair values of the stock was computed at N11.52k and N13.57K respectively. The combined average fair value based on both models is N12.55k indicating that the stock is N1.03, or 8.2% below fair value. Although the stock is below fair value, I will not buy the stock at the current price because the risk/reward value is low.


AFRIBANK

Technically, Afribank Bank with a current share price of N21.56k is trading above its 20 day and 50 day bonus adjusted cumulative simple moving averages of N21.38K and N19.27K respectively. Technically it appears that stock is trying to break down as It attempts to bounce of its 20 day CSMA. Based on the technical indicators, an investor will wait to see if Afribank breaks below its 20 day CSMA

However, based on the most recent financial statements, we determined the earnings multiple at 26.01, next year’s projected earnings at N1.16, dividend yield at 1.2%, dividend payout ratio of 30.2%, and retention rate of 68.8%. Using the constant growth and price earning multiple models the fair values of the stock was computed at N20.83k and N30.06kK respectively. The combined average fair value based on both models is N25.45k indicating that the stock is N3.89k, or 15.3% below fair value. Since the stock is below fair value by 15.3%, it has a good risk/reward ratio. I will begin accumulating the shares at the current price. The only negative indicator is the low dividend yield of 1.2%. As a rule, dividend paying stock with a yield below 2% are considered expensive.


Conclusion

Although the Nigerian capital market is currently in a downtrend, my advice to long term investors is that start buying well managed companies that are undervalued. Although, all capital markets worldwide are experiencing severe bearishness, history has proven that these markets eventually turn around.

[hispy99]

NSE, Banks Work out N600bn Bail-out Package
By Goddy Egene and Eromosele Abiodun, 10.08.2008

Stock Market Crisis

Strong indications emerged yesterday that the Council of the Nigerian Stock Exchange (NSE) may have made a head way in its efforts to bail out the nation’s stock from its lingering slide.
This followed an agreement reached between the Council of the NSE and some banks to inject N600 billion into the market.

The Director-General of the NSE, Prof. Ndi Okereke-Onyiuke, had last Monday said a meeting would be held between the Exchange and the Securities and Exchange Commission (SEC) as part of fresh efforts to find a solution to the falling share prices.

However, SEC officials were not at yesterday’s meeting that was held in Lagos.

A source close to SEC said that while the Commission was in support of efforts to bail out the stock market, it was not aware of the latest arrangement.

But THISDAY gathered that the part of the bail-out package discussed yesterday include an arrangement that would lead to the appointment of six banks to act as major “Market Makers”. The banks would then provide N100 billion each to buy up to 15 per cent of their shares from the market.
Although any company can be licensed under the guidelines issued by SEC for operators to become Market Makers, it was gathered that the NSE may have encouraged banks to take the lead.

A source said that the thinking is that given the financial muscle of the banks, they would easily meet the minimum capital requirement of N2 billion stipulated by SEC.

“The banks, working according to the guidelines issued by SEC, will provide funds to mop up shares from the market and sell the same shares whenever the need arises,” a source said.
Capital market operators said that given the current capitalisation of banks and the urgency to bail out the nation’s stock market, banks are in a good position to play as Market Makers by floating subsidiaries that would do so.

The SEC’s rules define Market Maker as “Any specialist permitted to act as a dealer, any dealer acting in the position of a block positioner, any dealer, who with respect to a security, holds himself out as being ready to buy and sell such securities for his own account on a regular and continuous basis”.
The Market Maker shall be a company duly registered with Corporate Affairs Commission (CAC) and shall have a minimum paid-up capital of N2 billion. A Market Maker is required to at all times maintain sufficient liquid assets to cover its current indebtedness.

Obligations of the Market Maker include: stabilisation of the market by ensuring continuous liquidity by synchronising buy and sell transactions of a security; operate within the established transaction spread (that is bid/offer spread) which shall be a maximum limit of three per cent and subject to
review from time to time.

Also, the Market Maker will have the capacity for continuous two-way quotes in the relevant stocks through the trading session in a minimum quote size of 100,000 units of shares and must have the capacity to deliver and settle transactions within the prescribed settlement cycle of T+3. The

Market Maker must equally have the capacity to lend and borrow the designated securities at any time, with a view to ensuring stability in the market among others.

Meanwhile, worried by the worsening global financial meltdown, the Senate will today consider a motion on the issue and its impact on Nigeria.

The motion, entitled: “Global Credit Crisis and its impact on Nigeria”, is being sponsored by Senator Anthony Manzo with 18 co-sponsors.

In the motion, listed on yesterday’s notice paper, the sponsor noted that the wave of the global financial crisis sweeping through United States of America and Europe was the first financial crisis of the 21st century.
If the Senate throws its weight behind motion, commendation may come the way of the Central Bank of Nigeria (CBN) for the quick intervention by injecting N1 trillion into the economy.

[muranay@yahoo.com]

NSE okays six banks for N.6trn intervention fund

The Council of the Nigerian Stock Exchange after a long meeting yesterday formally gave approval for the six clearing and settlement banks to act as market makers in the Nigerian stock market.

Also a meeting of the Quotations Committee of the Exchange was able to appraise applications from 8 out of the fifteen banks that had proposed to source fresh funds from the market.

A source at the meeting disclosed that the NSE council agreed that Intercontinental Bank plc, First Bank of Nigeria plc, Union Bank plc, UBA plc and Zenith Bank plc and GT Bank plc all settlement banks to the Central Securities Clearing System (CSCS) should be allowed to play the roles of market makers. Each of the banks will in the interim provide N100 billion as intervention funds in the market even as the source disclosed that they could be allowed to buy back their own shares.

Business Day also learnt the eight companies that were screened by the Quotations committee did not get a firm commitment from the committee while others had been scheduled to re-appear at a later date.

The SEC new rule on market makers was created with a view to allow specialists act as dealers in the market. A market maker is expected to be a duly registered company with a minimum paid up capital of N2 billion.

Although officials of the Nigerian Stock Exchange and the SEC would neither confirmed nor deny the development, it was gathered that the banks are already in good stead to play the role of market makers going by their capital base and their ability to provide the required stabilization fund in the market.

A capital market source told Business Day last night that the director general of the NSE, Ndi Okereke-Onyiuke actually had the banks in mind when she noted that the Exchange and the SEC would meet to work out a bail-out plan that would help stem the falling share prices.

She had noted that the plan would also involve the Central Bank of Nigeria and market operators including the banks. The source however, disclosed that the SEC was still studying the implications of allowing the banks majority of which that are quoted on the Exchange to act as market makers.

Accoridng to SEC, the market makers must be registered as a self regulatory organisation (SRO) and must comply with the code of conduct of capital market operators as provided under Rule 43(1) and (2) of the SEC rules and regulations.

They are to serve as a source of market information for the designated securities for which at all times, they stand ready. Besides, market makers are to facilitate a smooth trading atmosphere and engender market stability as well as promote price discovery.

Part of the obligations of a market maker include the ability to stabilise the market by ensuring continuous liquidity, by syncronising buy and sell transactions, operate within the established transaction spread which would be a maximum limit of 3 percent and subject to review from time to time. A market maker is also expected to have the capacity for continuous 2-way quotes in the relevant stocks throughout the trading session in a minimum quote size of 100,000 units of shares.