Economic Confidential

Determined to ensure quality trading and reawaken investors’ interest, The Nigerian Stock Exchange (NSE) last month launched its Market Quality Reports (X-Qual). This makes it the first Capital Market Operator in Africa to launch such a platform and this was introduced to key stakeholders at the Nigerian Capital Market Committee Retreat and Conference in Warri, Delta State on November 27.

Chief Executive Officer of exchange, Oscar Onyema, disclosed to all present at the Annual Conference that The NSE Market Quality Report is designed to disclose the extent to which equities traded at the Exchange provide executions at prices better than the prevailing price quotes before an investor places an order. “The information will no doubt enable analytical investors or broker-dealers gain a better understanding of how best to execute orders in the market and the quality of execution they can expect for the different stocks being traded”, he said.

He added that the report include information about the Exchange’s quality of executions on a stock-by-stock basis, including how orders of various sizes are executed relative to the available price quotes. The report also discloses information about effective spreads (the spreads actually paid by investors when their orders are executed), realised spreads (shows whether the liquidity providers for a trade subsequently have the price move in their favour after the trade), fill rates (the likelihood of executions to occur), and execution speed (time taken to execute orders).

He explained that Nigeria has no rules governing the disclosure of order execution and routing practices but in developed markets, there are rules that require and govern such disclosures. For instance, the US SEC adopted two rules to improve public disclosure of order execution and routing practices. These are Rule 605 and Rule 606; the former makes a requirement for electronic reports from Market Centres which include uniform statistical measures of execution quality to be made available to the public on a monthly basis while the latter requires all broker-dealers routing orders in equity and option securities make available quarterly reports that present a general overview of their routing practices. The new initiative is based on the US Sec Rule 605 market execution disclosure requirements.

The NSE boss further stressed that liquidity and transparency are the two most important criteria for a company looking to list on an exchange while disclosure is paramount to transparency and to attracting participation in any market. The new initiative would improve on the quality of all three in the Nigerian bourse.