NGX, Stanbic IBTC seek more securities lending to deepen market liquidity

The Nigerian Exchange Limited and Stanbic IBTC Stockbrokers Limited have urged increased involvement in market making and securities lending to bolster liquidity, enhance price discovery, and elevate the efficiency of Nigeria's equities market. During a recent webinar titled "Unlocking Liquidity in the Equities Market: The Role of Market Making and Securities Lending," market operators and stakeholders discussed the importance of these mechanisms in facilitating trade execution and stimulating participation in the secondary market.

NGX CEO Jude Chiemeka emphasized that liquidity is "the lifeblood of a functioning capital market" and stressed that a market's strength should be evaluated based on factors such as the ease of entering and exiting positions, competitive bid-offer spreads, and the precision of price discovery. He commended the Securities and Exchange Commission for fostering a conducive regulatory environment for market making and securities lending, stating that these initiatives pave the way for a more robust Nigerian capital market.

Currently, the Nigerian capital market boasts a combined capitalization of approximately N213tn, consisting of roughly N156tn in equities and N56tn in fixed income, with exchange-traded funds accounting for about N61bn. With eight designated market makers and a well-established securities lending framework, the market is poised for further growth through heightened participation in both mechanisms.

Jesse Van Rensburg, Head of Equities Sales Trading at Standard Bank Group, highlighted securities lending as a crucial tool for market makers, enabling them to manage bid-offer spreads and liquidity conditions more effectively. He noted that access to securities lending allows market makers to maintain inventories, adapt to shifting liquidity conditions, and continue providing liquidity to investors.

Van Rensburg also pointed out spread management, inventory risk, and capital exposure as essential considerations for effective market making. The dialogue highlighted the symbiotic relationship between market making and securities lending, asserting that increased access to securities enhances market makers' ability to provide continuous liquidity, while heightened market-making activity creates a more dynamic environment for securities lending.

Brokers can contribute to the ecosystem by facilitating more efficient trade execution, deepening trading activity, and bolstering the secondary market. Achieving the full potential of these mechanisms requires ongoing collaboration among brokers, market makers, custodians, asset managers, institutional investors, regulators, and the Exchange, with key priorities including improving securities availability, reinforcing infrastructure, bolstering transparency and risk management, and expanding investor participation.