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

On Tuesday, the Nigerian Exchange Limited and Stanbic IBTC Stockbrokers Limited advocated for increased involvement in market making and securities lending during a webinar. The event focused on how these mechanisms could enhance liquidity, improve price discovery, and bolster the efficiency of Nigeria's equities market. Chief Executive Officer of NGX, Jude Chiemeka, emphasized that liquidity serves as the "lifeblood of a functioning capital market," highlighting that a market's strength extends beyond listed companies or market capitalisation to include factors such as efficient position trading, competitive bid-offer spreads, and effective price discovery.

Chiemeka praised the Securities and Exchange Commission for fostering a conducive regulatory environment for market making and securities lending, asserting that these initiatives lay a solid foundation for broader market participation, heightened liquidity, more precise price discovery, and a resilient Nigerian capital market. Currently, Nigeria's capital market boasts a combined capitalisation of approximately N213tn, encompassing roughly N156tn in equities and N56tn in fixed income, alongside about N61bn in exchange-traded funds.

With eight designated market makers and a well-established securities lending framework, the market is poised for further growth through heightened participation in these mechanisms. Jesse Van Rensburg, Head of Equities Sales Trading at Standard Bank Group, underscored securities lending's critical role for market makers, particularly in supporting bid-offer spreads and managing shifting liquidity conditions.

He noted that market makers continuously navigate fluctuations in demand and supply, including scenarios where trading activity leans heavily towards offers over bids. Access to securities lending, according to Van Rensburg, empowers market makers to better manage inventories and adapt to market dynamics while persistently providing liquidity to investors.

He also identified spread management, inventory risk, and capital exposure as crucial considerations in efficient market making. The webinar underscored the symbiotic relationship between market making and securities lending, with increased access to lendable securities enhancing market makers' ability to deliver consistent liquidity, while greater market-making activity fosters a more dynamic setting for securities lending.

Brokers stand to gain from heightened participation in both mechanisms, as it facilitates more efficient trade execution, expands trading activity, and contributes to a robust secondary market. However, all stakeholders agreed that unlocking the full potential of these mechanisms necessitates sustained collaboration among brokers, market makers, custodians, asset managers, institutional investors, regulators, and the Exchange.

Key priorities include improving securities availability, fortifying infrastructure, enhancing transparency and risk management, and expanding investor involvement.