BANKS PLANNING TO INJECT 600 BILLION INTO STOCK MARKET

By Goddy Egene and Eromosele Abiodun, 10.08.2008

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.