Market Liquidity Enhancement Update in Nigerian Capital Market 2017

TECHNICAL COMMITTEE ON MARKET LIQUIDITY ENHANCEMENT UPDATE NOVEMBER 2017

INTRODUCTION As part of the Securities and Exchange Commission s ( SEC or the Commission ) ongoing efforts to implement the over 100 initiatives recommended in the Nigerian Capital Market Master Plan (CMMP) 2015 2025 and in furtherance to SEC s vision of being Africa s most modern, efficient and internationally competitive market, the Commission recently set up a technical committee on the enhancement of market liquidity 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 Furthermore, the technical committee consists of key stakeholders and subject matter experts who have been collaborating and will recommend actionable steps which the SEC can implement to deepen liquidity in the market 1

UPDATES 2 main sub-committees have been set up (equity and debt) and the assignment is being viewed primarily from both lenses. Some focus areas of the committee so far include: 1. Exploring some key pillars which would have significant impact on market liquidity. They include: a) Developing a Diverse Investor Base Key levers for achieving this include: growing the retail investor base, attractive tax incentives especially because there is a lack of clarity as to what will happen post 2019 when tax exemption on Non-government bond instruments expires, simplified market access, incentivising local institutional investors and attracting international investors in the longer term, reduction in transaction costs. Also, a case study is being explored on how some jurisdictions attracted retail investors to their securities exchanges via a Bank-Broker programme. b) Increasing pool of securities /products available in the market Possible levers for achieving this include: Optimising market admission requirements such that while the requirements continue to protect investors they also do not limit introduction of innovative products that could deepen liquidity of the market; Launch of a diverse product pool Collective investment schemes, ETFs, and derivatives which can serve as alternative investment outlets for optimizing returns and risk management; Increase the supply of issuances. 2

UPDATES c)Creating an enabling environment possible levers for achieving this includes: Improving market trading technology; Enhancing market and reference data; Improving free float; Leveraging technology to improve access to products and historical trading data is key to deepening market liquidity. Also, funding for key market participants will positively impact market liquidity. 2. Examining constraints of existing liquidity initiatives with a view to recommending the way forward a) Market making challenges include Inadequate incentives, Limited access to capital, including cash and securities, major activities limited liquid securities. a) Securities Lending and Short Selling challenges include slow on-boarding process by SLAs with stringent requirements, lack of adequate market knowledge on Securities Lending, absence of robust regulation guiding Securities Lending activities 3

NEXT STEPS Invite external stakeholders to socialize ideas - Banks, Securities lending agents, market participants. Propose 3-5 implementable, low hanging fruit solutions Funding, Improving Market Architecture, Collective Investment Schemes, etc. Extension of timeline to December 2017 4