The Nigerian Exchange Limited (NGX) has identified lack of liquidity and the inability to raise the required capital as the two biggest obstacles to the launch of the market-making program.
Other restrictions include a lack of incentives, such as increased revenue prospects and alluring transaction and regulatory costs.
Market making happens when a holder of a trading license continuously quotes the market buy and sell prices on a set of securities throughout the trading day.
Market makers essentially show the price at which they are willing to purchase or sell a security as well as the promised quantity of units. When they receive an order from a customer, they sell items from their inventory to fulfill it.
Speaking about the forecast for 2023, Temi Popoola, group chief executive officer of the NGX, cited the exchange’s difficulty in attracting the necessary capital as well as the lack of incentives that would entice businesses to the program as major obstacles to the program’s implementation.
However, he added that a fresh reform is under progress and has taken into account the obstacles standing in the way of the program’s successful launch.
Popoola stated: “For us to effectively carry out the programme, capital is key and our struggle to attract the right level of capital and risk management has to do with it. Also, to take any risk, you must have incentives tied to it.”
He gave stakeholders the reassurance that NGX is dedicated to addressing liquidity issues and guaranteeing a steady flow of cash into the stock market.
“We recognise the importance of liquidity as a driver of participation in our market and are confident that market making will ease the barrier of entry and exit, whilst providing a measure of control over volatile price fluctuations.”
“As we continue to consider ways to maximise opportunities across our value chain, our goal is to evolve with the increasingly sophisticated needs of our stakeholders and market making is just one of the strategies we will deploy in this regard,” he said.
Jude Chiemeka, Divisional Head of Capital Market at NGX, asserted that the new, improved market-making platform has a business incentive that will enable businesses to generate essential liquidity.
He acknowledged that some conventional stocks rendered it impossible to make the market but noted that the value of trade has improved recently, improving liquidity in the market-making environment.
Chiemeka emphasized that market making offers advantages across the board for consumers.
Because of the accountability and risks they have assumed, he contends that market makers should anticipate increased revenue potential as well as lower transaction and regulatory fees.
Other capital market participants, according to him, will profit from more liquidity, deeper markets, improved portfolio diversification, and other advantages.
“To ensure that the market indeed reaps the benefits, we have been painstaking in our selection of Market Makers and we encourage investors to leverage the opportunities they bring to the table,” he added.
