Market makers to help improve BSEL liquidity
More liquidity is expected on the local bourse next year when the exchange introduces market makers for equity and fixed income securities.
The development comes after the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) approved rules regulating market makers on the exchange and implementation timeline is January 2019.Product Development Manager for Botswana Stock Exchange Limited (BSEL) Thapelo Moribame said market makers should excite the bourse, unlock liquidity, improve price discovery and increase the depth of the market.
“Currently, global liquidity levels are low, and thus poor price discovery for listed securities and the BSEL is no exception,” said Moribame.She bemoaned that low levels of liquidity have a negative impact on returns accrued from the market.However with market markers there will be easy entry and exit of investors, which will lead to enhanced portfolio diversification and management.
In addition, the listed companies will benefit from more activity in securities, better attractiveness and also BSEL, central securities depository (CSD) and brokers will benefit from increased liquidity, an amplified number of executed trades and lower impact costs.According to Moribame, securities holders for which market makers have been appointed can be confident that they can either buy securities or sell their holdings when they wish to do so.
She said through enhancing the liquidity of listed securities, market makers contribute to the maintenance of an efficient and orderly market and add to the attractiveness of the stock to current and prospective investors.Currently, the Botswana Stock Exchange Limited (BSEL) has appointed market makers for Exchange Traded Funds (ETFs) that are listed on the exchange and this has helped to improve price discovery and liquidity of the ETFs.
The market making on equity and fixed income securities is expected to commence on the 1st January, 2019 when the rules are now effective. Ahead of the implementation, BSEL has scheduled capacity building workshop to educate interested parties on market making activities beginning of September.
The workshop is expected to be a highly interactive forum and it has been created to give industry participants an opportunity to enhance and broaden their knowledge on market making operations and net-work with market making experts from South Africa.The BSEL market making seminar will target executives in financial institutions which deal with listed and unlisted securities.
These include the brokers, commercial banks who are potential market makers, institutional investors, particularly pension fund managers, the BPOPF, issuers of securities, regulators of capital markets, transfer secretaries, corporate finance and legal advisors.
Moribame said market makers are now a cornerstone in the marketplace as they support the liquidity of securities by providing continuous bid and ask quotations, increased number of executed trades. “In particular, market making is becoming increasingly important for markets that are concerned with a decline in trading volumes and liquidity levels.”
Meanwhile, BSEL is working on a raft of developments to improve the bourse including among others drafting depository receipts listing requirements to facilitate issuance and listing of sponsored and unsponsored depository receipts on the local market.