Amidst the collapse of sentiment for equities resulting in a sustained bearish trading on the floor of the Nigerian Stock Exchange (NSE) in the first two weeks of the year, the management of the exchange has exonerated capital market makers for the volatility, saying it is not the work of market makers to sway the direction of the market.
This was the position of the Director-General, NSE, Mr. Oscar Onyema, who acknowledged the turbulence in the market at a press briefing in Lagos. He described the volatility in the market as a moving train.
But when asked to explain why the market, in spite of the services of market makers, has continued to experience massive sell off in recent times, Onyema disclosed that there was nothing the firms under this category could do, saying all that is expected of the market makers is the provision of continuity in the market place and not to determine market direction.
He explained that ordinarily, what the market makers do is to ensure continuity in the pricing of stocks.
“The market is big and we don’t want the price someone wants to sell to go from N5 to N4 in one shot. So market makers put themselves somewhere in between, N480, N460 as a way of providing continuity in the market place,” he said.
He insisted that market makers had done their job and that was why the market did not shut down like other markets last year.
“The market makers have done their job, they are not perfect, there is still the opportunity to do more and we are going to work with them in that regard,” Onyema who described the recent turbulence, as a moving train said no one can stand in front of a moving train.
The term “market maker” refers to any dealing member of the NSE who has been appointed, and undertaken to enhance the market liquidity of a particular security in accordance with NSE rules. 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.
Some of the firms appointed by the NSE as market makers included Capital Bancorp Plc, Chapel Denham Securities, CSL Securities, Dunn Loren Merrifield Limited, FBN Securities, Future View Securities, Rencap Securities, Stanbic IBTC Securities and Vetiva Securities Limited.
Trading in the first two weeks of the year were characterised by loss of sentiment as investors scurried for exit over concerns that the global steep decline in crude oil price could worsen Nigeria’s tenuous foreign exchange management.
With more than 11 losers to every gainer in most of the trading so far, the Nigerian Stock Exchange (NSE) was on full sell mode. In the midst of the panic and confusion, the use of open market sell orders, which mandate brokers to sell at prevailing prices, turned the market into a complete buyers’ market, piling up losses on the divesting investors.
Onyema disclosed that between June 2014 when the oil rout began, and now, the market has lost about $30 billion in capitalisation.
Market analysts said the steep decline was a reflection of the poor sentiments in the market amidst news about the slump in crude oil price to 12-year low. Continuing decline in crude oil price, Nigeria’s main foreign exchange source, has left the country with low forex reserves and a bleeding currency. While there have been clamour for further devaluation of naira, the Central Bank of Nigeria (CBN) has held on tightly to its forex control management, an increasingly difficult position in the light of low forex reserves and incomes.
Explaining the current scenario, Onyema said given the fact that the Nigerian market is made up of between 45 and 60 per cent foreign portfolio investors, it is not a surprise that the exit of this group of investors would affect the market negatively.
He explained that apart from the tumbling oil prices, which have continued to erode Nigeria’s foreign exchange position, foreign investors are also jittery as a result of lack of clarity on government policies.
He expressed the hope that the plan by the federal government to fund 2016 budget deficit locally may raise activities in the Nigerian market very soon.
He was also positive on the plan by government to privatise some companies, saying, “In terms of encouraging government to finance its deficit, one of the things we are looking at is for government to privatise some of its enterprises so that government can easily free up cash which they can also bring into the market and do IPO. We are encouraged by announcement from minister of Petroleum that the NNPC would be split in a matter of two years. These are the kinds of things that will free up funds from government and it will be able to give Nigerians opportunity to have ownership stake in these entities.”