Market Liquidity Enhancement Committee Summary

TECHNICAL COMMITTEE ON MARKET LIQUIDITY ENHANCEMENT UPDATE AUGUST 2018

INTRODUCTION The overall objective of the committee is to drive implementation of recommended initiatives in the Master Plan aimed at enhancing market liquidity, which is central to the consolidation of the gains from other ongoing initiatives in the Nigerian capital market In furtherance to this objective, the technical committee's activities are expected to be guided by the broad terms of reference enumerated below: Examine existing liquidity enhancement initiatives such as securities lending and market making to identify possible challenges and constraints; Develop Roadmap for the enhancement of liquidity in the market; and Undertake any other activity that may be relevant to the achievement of the mandate The Committee operated via two (2) main sub-committees with focus on equity and fixed income The Committee also invited and received presentation/recommendations from: FMAN on the liquidity challenges in the Collective Investment Scheme segment Stanbic IBTC on the challenges with the implementation of the NSE Securities Lending Framework Presentation from NSE Market Maker The Committee currently consolidating the identified challenges, recommendations and solutions into a final report. 1

SUMMARY OF KEY RECOMMENDATIONS FROM FIRST DRAFT Improvement in Increasing pool of securities /products Free Float Reduction in Transaction Costs Product Development Establishing supporting structures supporting structures Direct Market Access Developing a diverse investor base Increase market access beyond the traditional broker- dealer set up to allow more direct access and accommodate a diversified range of investors, as well as different trading strategies Create incentives that makes the concentration of ownership in public listed companies less attractive in other to improve the supply freely tradable shares in the market. Actively seek ways to reduce transaction costs including commission rates and advocate for lower taxes on capital market transactions. Increase the variety of investment products available in the market, including derivative instruments, to provide options for a wide range of investors with different trading strategies, risk appetite and investment horizon 2

SUMMARY OF KEY RECOMMENDATIONS FROM FIRST DRAFT Increase the Increasing pool of securities /products Supply of Issuances Ensure Efficiency of Liquidity Capital Market Funding Mechanism Establishing supporting structures Programs Promote Retail Participation Developing a diverse investor base Encourage collective investment schemes as a means to access capital market. Increase listings through dual and cross-listings as well as via promoting quality companies with good value propositions Implement the Securities Lending and Short Selling framework and revamp the Market Making program Establishing a market fund will protect the market by maintaining liquidity in the face of sharp FPI capital repatriation Encouraging higher retail participation would balance the investor profile in the market and promote financial inclusion 3

SUMMARY OF KEY RECOMMENDATIONS FROM FIRST DRAFT Development of Increasing pool of securities /products diverse investor base Increasing securities pool Deepening CIS ecosystem Establishing supporting structures Creation of enabling market Developing a diverse investor base Investing in the creation of an enabling market environment through the improvement of trading technology, market reference data and the development of repurchase agreement schemes Promoting the development of a diverse investor base with a focus on attracting local and international institutional investors and enhance retail participation Increasing the pool of securities associated with financial products by increasing the number of local and foreign listings and products Deepen the CIS ecosystem by promoting distribution of CISs products through channels such as full-service brokers, independent financial planners, bank or savings institution representatives, or insurance agents 4

SOME REGULATORY ADVOCACY OPPORTUNITIES Work with the Federal Inland Revenue Service ( FIRS ) to clarify the pass-through tax status of CISs and to provide tax incentives for savings channeled through CISs. Again, it is noted that there have been on-going engagements in this regard, but it is important this a favorable conclusion is reached and communicated Reduction/eliminatio n of capital controls to allow free inflow of foreign investments into the market. This was signaled by the FPI optimism towards the Investors and Exporters FX Window. Co-ordination of effective monetary and fiscal policies to remove business uncertainty and improve the ease of doing business, as well as Granting incentives for businesses to list on the NSE, particularly companies in the telecommunications and oil and gas sector. Maintenance of regulatory reforms to ensure financial market integrity, so as to restore investor confidence in the market, as well as pension reforms to promote participation in variable instruments and drive liquidity Correcting the yield curve anomaly that makes short tenured risk-free instruments more attractive. 5