Market Operations - Key Highlights. An NSE Presentation By Olumide Lala Head, Transformation & Change Abimbola Babalola Head, Surveillance

Transcription

1 Market Operations - Key Highlights An NSE Presentation By Olumide Lala Head, Transformation & Change Abimbola Babalola Head, Surveillance September 2012

2 Outline Changes to Market Structure Key Highlights of Securities Lending Short Selling Short Selling Rules NSE Market Operations Rules Q & A

3 Changes to Market Structure Hybrid Market: The Nigerian Stock Exchange will operate a 'hybrid' market It will allow market makers to provide two way quotes and licensed broker/dealers of The Exchange to submit orders These quotes and orders interact on the order book to discover the best price for a security

4 Changes to Market Structure (Cont.) Types of Market Making Construct: Quote-driven market making: Only the bids and asks of market makers are displayed in the market. The orders of regular broker-dealers are not displayed. Order-driven market making: All the orders of buyers and sellers are displayed in the market, showing the quantity and the price at which a buyer/seller is willing to trade

5 Changes to Market Structure (Cont.) Rollout Period: The market makers will start with a limited number of securities and roll out the rest of the securities in their basket over a period of 6 months The lower/upper trading limit (circuit breaker) will increase from 5% to 10% for securities that gets rolled out into the programme

6 Changes to Market Structure (Cont.) List of Securities Capital Bancorp CSL Stockbrokers ESS/Dunn Loren Merrifield FBN Securities Future View Securities PZ Cussons Nigeria Plc Nigerian Bag Manu. Co. Plc Presco Plc International Breweries Lafarge Wapco Fidson Healthcare Plc Redstar Express Plc Zenith Bank Plc Sterling Bank Plc

7 Changes to Market Structure (Cont.) List of Securities Greenwich Securities Stanbic IBTC Renaissance Capital Vetiva Securities WSTC D.N. Meyer Diamond Bank Plc FCMB Plc Fidelity Bank Plc Nigerian Breweries Plc Guaranty Trust Bank Plc UAC Nigerian Plc

8 Key Highlights of Securities Lending Features: Securities Lending refers to the lending of securities such as stocks and bonds by one party to another The borrower provides acceptable collateral to the lender in the form of cash or other acceptable securities of equal but often greater value than the securities borrowed in order to protect the lender against any default by the borrower The borrower is obliged to return the securities at the end of an agreed period

9 Key Highlights of Securities Lending Parties to Securities Lending: Borrowers: Market Makers, Broker-Dealer firms, Investment Banks, Hedge Funds and Intermediaries usually comprise this group Direct Lenders: These tend to be large institutional investors such as Pension Plans, Insurance Companies, Mutual Funds, Sovereign Wealth Funds, Investment Companies and some High Net-worth Individuals Security Lending Agents (SLA): Custodians, Broker- Dealer firms and Asset Managers tend to play this role

10 Key Highlights of Securities Lending Contractual Agreements: In order to undertake a securities lending agreement, contracts between the lender and borrower must be in place, namely: o o The Global Master Securities Lending Agreement (GMSLA) The Securities Lending Authorisation Agreement (SLAA) The SLAA is only required when the lender (such as a custodian or broker-dealer firm) lends a security on behalf of the owner of the securities It is mandatory to have a GMSLA and SLAA (where applicable) in place prior to using any security for undertaking transactions on the floor of The Nigerian Stock Exchange

11 Short Selling Short Sale: The sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller Naked Short Sale: The practice of seeking to profit from an expected fall in the price of an asset by selling shares you do not own without borrowing, or making arrangements to borrow them

12 Short Selling (Cont.) Substantive Provisions A listed security may be sold short at a price below the last sale price A Dealing Member may not accept a short sale order in any security from another person, or effect a short sale in any equity security for its own account, unless the Dealing Member has borrowed the security, or entered into a bona-fide arrangement to borrow the security which will be delivered on the date of delivery All orders for short sale must be marked short sale.

13 Short Selling (Cont.) Naked Short Selling is Prohibited

14 NSE Market Operations Rules Link Between NSE & CSCS System is Down Current Market Rules Applies Onus is on the Broker Dealer to ensure that the position is covered to avoid a naked short sale Broker Dealer must buy the securities back from the market by T+1 at the latest Penalties o Suspension from performing Market Making Functions for serial offenders (More than twice in the same year)

15 NSE Market Operations Rules Link Between NSE & CSCS System is Up Bona-fide Securities Lending arrangement must be in place to ensure delivery on T+3. If Securities Lending Agent Fails to Deliver The Market Maker must buy the securities back from the market or borrow from another Lender by T+1 at the latest Corporate Actions and associated costs beyond T+3 remains the responsibility of the Market Maker NSE will develop and publish a Hard to Borrow List Market Maker is charged Covered Short Sale Penalty for the period NSE will recommend Penalty to SEC for the Lender

16 NSE Market Operations Rules Link Between NSE & CSCS System is Up Where a Bona-fide Securities Lending arrangement is not in place to ensure delivery on T+3. Market Maker would have effected a Naked Short Sale a punitive Naked Short Sale Penalty will apply to discourage repetition The Market Maker must buy the securities back from the market or borrow from another Lender Corporate Actions and associated costs beyond T+3 remains the responsibility of the Market Maker NSE will develop and publish a Hard to Borrow List Market Maker is charged Covered Short Sale Penalty for the period NSE will apply Penalty and recommend Penalty to SEC for the SLA

17 NSE Market Operations Rules Naked Short Sale Penalties Monetary Fine of 10% of the Value of the Transaction Suspension from performing Market Making functions for serial offenders (More than one in the same year) Termination of Market Making Privileges Where the Securities Lending Agent is the Defaulting Party, o NSE will make recommendations to the SEC to Suspend or Terminate the Securities Lending Agent s approval to perform the Lending function o NSE may impose its Penalties on the SLA o All Penalties borne by the PMM will be absorbed by SLA

18 QUESTIONS?

19 Thank You Stock Exchange House 2-4 Customs Street P.O. Box 2457, Marina Lagos Island, Lagos, Nigeria