4 February 2013

Nigeria: NSE Begins Retail Bond Trade

In a bid to broaden and deepen the Nigerian capital market, the Nigerian Stock Exchange (NSE) on Friday began trading on retail bonds.

At the close of trading which hadthe full participation of six fixed income market makers appointed by the mangers of the Exchange, investors traded 510 thousand units valued at N600,000 in 13 deals.

Speaking to reporters after the traditional bell ringing to close the day's trading, the chief executive officer of the NSE, Mr. Oscar Onyema, said the stock market community was excited that it has another instrument to trade and offer to its clients.

"It is a small beginning but we have seen that people can actually take position because it cuts across the market makers and broker dealers that actually participated in the market.

Speaking further on whether the development will phase out the OTC market activities, Onyema said the new product offering is believed to be complementary to OTC market.

"The OTC market is very institutional, the ticket prices are bigger. What we are doing is to bring in retail participants into the fixed income market.

He noted that the Exchange was only offering trading on bonds that are on official daily lists and covers the Federal Government of Nigeria (FGN), States and corporate bonds.

On the impact the new product will have on the quoted companies Onyema said, "We are expecting that this will actually drive the activities in the primary market, especially from the corporate aspect now that they know that they can actually participate from a retail perspective on the floor of the Exchange.

Commenting recently at a workshop on Retail Bonds Trading and Fixed Income Market Making, Onyema noted that the Exchange has consistently communicated its objective of broadening and deepening the Nigerian capital market and the development of the Retail Bond Market was clearly in line with this objective.

He explained that it was interesting to note that Government Bonds were the first securities that traded on the Exchange in 1961 and bonds continued to play a key role in the market for more than two decades until the federal government pulled out of bond issuance in 1987.

"Since the first reissuance of bonds in 2003, the DMO has raised trillions of naira for the financing of public projects and the revival of the FGN Bond Market has spurred state governments to raise funds via bond issuance. The bonds market capitalisation which stood atN3.74 trillion ($24.63 billion) in 2011 grew by 55.61 per cent in 2012 to N5.82 trillion ($37.44 billion). This figure is likely to grow even further because of the nation's dire need for new and revamped infrastructure.

"While we see this as a remarkable milestone, we are well aware that the bond market largely remains a playing field for institutional investors and high net worth individuals, with little retail participation and this presents a clear opportunity to broaden and deepen the capital market.

"Over the last few months, the NSE commenced the implementation of a coordinated approach to developing the Retail Bond Market. This workshop will be one of various avenues to acquaint all stakeholders with the structure and processes of the Retail Bond Market (RBM) ahead of its official launch in a few days.

"Recently, we announced the names of the selected fixed income market makers (FIMMs) on the trading floor of the NSE as a major step towards making fixed income securities accessible to the investing public. The companies selected went through a very rigorous process and met the additional net capital requirement of N500 million. We also examined their compliance history and looked into their operational capabilities, technology and processes.

"I would like to state that the RBM is not set up to compete with the OTC market, but rather complement the structure by opening up participation in the bond space to retail investors who otherwise would have been excluded as well as institutional investors with a preference for a transparent trading pattern," he said.

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