New rules for revamped NSE bourse from next month
Nigeria’s Stock Exchange is three weeks away from completing a revamp that will see it relax restrictions on price swings, adopt the Nasdaq platform, open into U.S. trading hours and allow short selling, its executive director said on Tuesday.
Ade Bajomo, executive director of market operations and technology, told the Reuters Africa Investment Summit in Lagos the bourse would implement new rules allowing stock prices to move by up to 10 percent a day, from its current 5 percent, and introduce market makers who can borrow stocks for shorting.
“What would we like to be when we grow up? I think Singapore,” he said. “A market that rises up from almost zero, a market run in an efficient manner … a financial hub.”
Under the new system to be implemented by next month, Africa’s second biggest bourse will open until 4 p.m. (1500 GMT) to overlap with U.S. markets. It currently shuts by 2.30 p.m.
A $10 million deal with Nasdaq to adopt its trading platform would be signed next week, making it easier for foreign and local investors to trade electronically, Bajomo said.
Africa’s second biggest bourse is automated, but the technology is old and price rather than quote driven. The new system will make the market more efficient, liquid and easier for traders to use, Bajomo said.
“One of the key initiatives is market-making, securities lending and short selling,” he said. “We want to build a hybrid market, with market-makers to create liquidity.”
Ten market makers were going through the final stages of approval before they start work, with the aim of having them operating fully in the market by the end of the month, he said.
Futures and other derivatives could start trading from 2014.
A relaxation of the minimum float requirement to 20 percent, from 25 percent, would entice companies, particularly foreign firms hesitant about being over-exposed, to list.
That would help meet the exchange’s target of getting 1,000 companies on its books within the next five years, up from its current 200 listings, Bajomo said.
Nigeria’s stock market had a torrid time in 2011, falling 16.3 percent despite an apparent end to a major banking crisis.
The index gained 3.5 percent by March 22, but a flurry of disappointing bank earnings has since sent that rally into reverse, leaving it 0.22 percent down this year.
Tellingly, the portion of stocks held by foreigners leapt by 80 percent to 512 billion naira ($3.23 billion), or about a third of the market, last year.
That suggests local, not foreign, investors remain the most wary of losses. A banking crisis wiped nearly half the value of equities in 2008, all but 6.4 percent of them held by locals.
“Quite a lot of people got burned in 2008, and they’re touchy,” said Bajomo. “There are efforts to educate people and get them back to the market.”
He would not give a time frame for when he thought the market would recover, but said a number of new listings were in the pipeline for when it does.
He urged the central bank to lower its current 12 percent interest rate which he said could help reverse a trend of local investors moving into higher yielding bonds.
Central Bank governor Lamido Sanusi is seen as a hawk on inflation, and the bank has raised rates six times in the past year.
“I would certainly like to see interest rates come down a bit. Businesses cannot thrive borrowing at 20 percent,” he said.
Change to regulation, such as plans by Nigeria’s pension regulator to increase limits on pension funds’ investment in the stock market to half of their portfolio, from a quarter currently, would further boost the equity market, he said.