The Nigerian Stock Exchange has fixed the minimum capital requirement for market makers at N500m, in its drive to boost investors confidence in the capital market.A top management source at the Exchange told our correspondent on Tuesday that though the sum had not been made official to dealers, the decision was in line with the NSEs plans to effect a speedy recovery of the crashing stock market.This has not been made official by the council, but it is true and it is part of efforts geared towards seeing to a speedy recovery of the capital market, the source said.The market maker is a broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buying and selling quotations for a guaranteed number of shares.Meanwhile, the NSE in the newly released guidelines for market makers said that it would appoint a primary and two supplemental market makers per security.The first will be expected to provide a two-way quote for 90 per cent of the time in a trading day, while the supplemental market maker will be required to provide quote for 60 per cent of the time in a trading day, respectively.The minimum capital requirement (for market makers) shall be N500m, and the Exchange might demand additional capital based on the risk profile of the market maker, the guideline stated.According to the NSE, market making is a major strategy embarked upon by the management of the Exchange as a means of deepening the market and addressing lack of liquidity in the stock market.As part of the programme, market making has been mandatory in respect of all securities on the NSE, the guideline stated.The guidelines were addressed to the managing directors/chief executive officers of all stockbroking houses.The NSE said dealing member firms seeking to act as market makers were expected to apply to it in writing and must meet certain criteria.As part of the criteria, it said the potential market maker must be a licensed broker-dealer, registered with the Securities and Exchange Commission and Central Securities Clearing System and must meet the minimum capital requirement.The NSE stressed it hoped to work with the Central Bank of Nigeria to explore the possibility of banks providing the necessary financing for the market makers.The Exchange shall in conjunction with the CBN explore the possibility of the settlement banks providing funds to the market makers and creating corresponding lien on the shares held/traded by the marker makers, it said.
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