KATHMANDU, APR 05, 2013
The domestic capital market will not have a market maker any time soon. Citizens Investment Trust (CIT) that was deputed by the Finance Ministry and Securities Board of Nepal (Sebon) to carry out the role of a market maker in the stock market is not ready yet.
“The draft proposal has been readied which needs to be endorsed by the CIT board and the Finance Ministry for final approval,” said executive director of CIT Rishi Ram Gautam. “All these might push the entry of a market maker further than the end of the current fiscal year,” he added.
The Finance Ministry had directed CIT in February, 2012, to prepare a mechanism to start operations as a market maker to absorb excess shares and release shares in case of supply shortage to bring a balance in the share market.
A market maker can make bulk purchase or sale of securities unlike other ordinary investors and can quote both a buy and sell price of a financial instrument. It stands ready with a firm ask and bid price ensuring liquidity in the market. In a stock market like that of Nepal which is usually bugged by oversupply, a market maker is essential to steady the temporary imbalance.
In March last year, when Nepse hit a six-year low — 292 points — investors had specifically demanded for a market maker to balance the stock market. Since CIT has legal authority to work as a market maker as mentioned in its Act, it was deemed the most suitable entity to do so.
Due to the insistence of investors, regulators had asked CIT to design a modality for its wholesale entry, however, things cooled down once the market became bullish.
“There is not much urgency for CIT to become a market maker like it was last year, so things are progressing slowly,” pointed out Gautam. CIT had proposed to the Finance Ministry to form a pool fund among Employees Provident Fund, Rastriya Beema Sansthan and other insurance companies for seed money for a market making entity in the capital market.
CIT’s resources alone would not have been sufficient as we are planning to create a fund worth Rs five billion for the purpose, because the larger the size of the fund, the better it will be for the market due to increased capacity to purchase shares, informed Gautam.
However, Sebon is not happy with the delay. “CIT’s governing regulation and Act allows it to perform a market maker’s job but it is not ready to take up the role which has caused all the delays,” said chairman of Sebon Baburam Shrestha.
In addition, for a market maker to become functional, Nepal Stock Exchange (Nepse)’s trading system needs to add a window. Since market makers can quote a buy and sell price themselves they need a separate point of access to the trading system which is missing in Nepse’s current software. Nepse, that is in the process of replacing current trading system, will be incorporating a platform for a market maker.
Source: THT
The domestic capital market will not have a market maker any time soon. Citizens Investment Trust (CIT) that was deputed by the Finance Ministry and Securities Board of Nepal (Sebon) to carry out the role of a market maker in the stock market is not ready yet.
“The draft proposal has been readied which needs to be endorsed by the CIT board and the Finance Ministry for final approval,” said executive director of CIT Rishi Ram Gautam. “All these might push the entry of a market maker further than the end of the current fiscal year,” he added.
The Finance Ministry had directed CIT in February, 2012, to prepare a mechanism to start operations as a market maker to absorb excess shares and release shares in case of supply shortage to bring a balance in the share market.
A market maker can make bulk purchase or sale of securities unlike other ordinary investors and can quote both a buy and sell price of a financial instrument. It stands ready with a firm ask and bid price ensuring liquidity in the market. In a stock market like that of Nepal which is usually bugged by oversupply, a market maker is essential to steady the temporary imbalance.
In March last year, when Nepse hit a six-year low — 292 points — investors had specifically demanded for a market maker to balance the stock market. Since CIT has legal authority to work as a market maker as mentioned in its Act, it was deemed the most suitable entity to do so.
Due to the insistence of investors, regulators had asked CIT to design a modality for its wholesale entry, however, things cooled down once the market became bullish.
“There is not much urgency for CIT to become a market maker like it was last year, so things are progressing slowly,” pointed out Gautam. CIT had proposed to the Finance Ministry to form a pool fund among Employees Provident Fund, Rastriya Beema Sansthan and other insurance companies for seed money for a market making entity in the capital market.
CIT’s resources alone would not have been sufficient as we are planning to create a fund worth Rs five billion for the purpose, because the larger the size of the fund, the better it will be for the market due to increased capacity to purchase shares, informed Gautam.
However, Sebon is not happy with the delay. “CIT’s governing regulation and Act allows it to perform a market maker’s job but it is not ready to take up the role which has caused all the delays,” said chairman of Sebon Baburam Shrestha.
In addition, for a market maker to become functional, Nepal Stock Exchange (Nepse)’s trading system needs to add a window. Since market makers can quote a buy and sell price themselves they need a separate point of access to the trading system which is missing in Nepse’s current software. Nepse, that is in the process of replacing current trading system, will be incorporating a platform for a market maker.
Source: THT
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