Wednesday 01 September 2010
- Culled from Businessday NewsThe potentials of
the Nigerian Bond market as a viable financing window are not being realized
fully due to the non trading of fixed income securities on the floor of the
Nigerian Stock Exchange, investors have said. At present, Federal
Government bonds trade on the over the counter window where primary market
dealers and high end investors hold sway, leaving retail investors out of bond
trading. But analysts say
this does not augur well for the development of the fixed income market which
is a viable window to finance long term developments. A dealer told Business
Day that failure to take retail investors into consideration makes the market
less efficient. It is also believed that this does not allow for the needed
liquidity in the bond market since the funds from retail investors are shut out
of the market. The Federal
Government bond was dormant for several years until the Debt Management Office
(DMO), currently responsible for the floatation of sovereign bonds came into
being. And since inception the office has carried out market reforms that have
led to restructuring of the market from mere 180 day bond to 20 year tenor. The
result is creation of yield curve, which serve as benchmark for the pricing of
other forms of bonds. Before the
establishment of DMO in 2004, stockbrokers were trading in bonds on the floor
of the Stock Exchange. And the feeling in some quarters is that participation
of retail investors through stockbrokers would make the market more competitive
and efficient. Stockbrokers have
also joined in canvassing for the transfer of bond trading to the floor of the
stock exchange. Abayomi Sanya, managing director of Goldman Asset, in trying to
justify this said, by trading bonds on the floor, NSE platform and the price
discovery that goes with market efficiency can be deployed to grow the debt
market. Operators who share the view that bonds are over priced believe trading
fixed income securities on the exchange will improve the pricing. Opposition against
stockbrokers participation in the bond market say they may not possess the financial
muscle and skill to play in the market. But stock brokers say the requisite
skill is not different from that of equities trading where some of them have
excelled. Besides, the current levels of capitalization among broking firms are
considered a good start for them.