Before the financial meltdown in 2008, the Nigerian stock market was an investors’ haven. It was a classic bull market and was rated one of the best among the emerging markets by notable rating agencies such as Standard & Poor’s and the International Finance Corporation (IFC) in terms of return on investment.
The dwindling fortunes and the continuous volatility being witnessed in prices of shares occasioned by the global financial meltdown and crisis of confidence following corporate governance? lapses were considered detrimental to investors’ interest and have created massive negative publicity for the market.
Though the regulatory authorities took certain measures, some of which are commendable while some can only be taken with a pinch of salt, in an effort to redress the situation, there are other critical issues which touch on the core of the problem which have not been addressed, such as the issue of market makers. The stock market meltdown took an alarming dimension because of the absence of market makers.
A market maker is a dealing firm which maintains firm bid and offer prices on a given security by standing ready to buy or sell that security.
All over the world, market makers play a very important role in both the equity and bond markets. They stabilise the market by standing ready to intervene at moments of scarcity or excess supply of securities. It is naïve, unrealistic and detrimental to investors to operate an automated stock market without the active participation of market makers.
The NSE had last year embarked on the market maker programme as one of the major strategies aimed at increasing investors’ confidence, deepen the market and address lack of liquidity in the market.
However, strong indications emerged last week that the Nigerian Stock Exchange (NSE) would soon give licences to 10 of its dealing firms to act as market makers as part of efforts to improve liquidity in the market.
According to reports, the indication came during a meeting of the Chief Executive Officer of NSE, Mr. Oscar Onyema, with chief executive officers of dealing member firms of the Exchange.
It was gathered that series of meetings have been going on between the Exchange and the operators who applied to be market makers.
However, sources at the meeting held with Onyema said the Exchange was considering registering 10 market makers in the first instance.
“From what the NSE CEO said, only 10 market makers would be appointed for now, and we believe this will be done very soon.