Business

SEC blames failure of market making initiatives on liquidity challenges

The Securities and Exchange Commission (SEC) has attributed the failure of the securities lending and market making initiatives introduced by the Nigerian Stock Exchange (NSE) in 2012, to liquidity challenges facing the capital market.

The SEC Director-General, Mounir Gwarzo, stated this at the post-Capital Market Committee (CMC) news conference in Lagos on Monday.

Gwarzo said that the issue of illiquidity had become a major challenge impeding the growth of the market.

Security lending

Security lending is the market 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.

Security lending plays an important role in capital markets by providing liquidity, which in turn reduces the cost of trading and promotes price discovery.

Market Making on the other hand, 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.

Gwarzo said that most of the initiatives introduced by the exchange in the past to boost activities, failed because of lack of access to liquidity.

He also said that the Commission had inaugurated a Committee that would commence a study on how to address liquidity issues in the entire gamut of the market.

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