CIT proposes pool fund for market maker

KATHMANDU, OCT 4: 

Citizen Investment Trust (CIT) has asked large institutional depositors to join hands to form a fund that will work as a market maker in the domestic capital market.

“CIT has proposed the Finance Ministry to form a pool fund between Employees Provident Fund (EPF), Rastriya Beema Sansthan (RBS) and other insurance companies that will provide seed money for a market making entity in the capital market,” said chief executive officer of CIT Rishi Ram Gautam.

The proposal was made in a document prepared by Citizen Investment Trust and submitted to the Finance Ministry regarding the modus operandi of the market maker. “We are waiting for the ministry’s response before deciding on further steps,” he added. 

In February, the Finance Ministry had directed Citizen Investment Trust to prepare 

a mechanism to start the operation of a market maker to 

absorb excess shares and release them in case of supply shortage to bring a balance in the share market. 

Investors had specifically demanded for a market maker to bring a balance in the stock market. CIT, Employees Provident Fund and Rastriya Beema Sansthan were considered to be the most suitable. 

A market maker can make bulk purchases or sales 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. 

“Citizen Investment Trust’s resources alone will not be sufficient as we are planning to create a fund worth Rs five billion for the purpose. The larger the size of the fund, the better it will be for the market due to increased capacity to purchase shares,” pointed out Gautam. 

CIT’s investment in shares of listed companies amounts to Rs 600 million which is 8.25 per cent of the total investment, by the end of last fiscal year. 

The entry of a market maker in the Nepali stock market still seems to be elusive in the absence of legal and technical infrastructure. 

The committee, formed to study the modality for CIT’s wholesale entry in the capital market, has pointed out the need for a regulation to include the provision regarding market maker for the purpose. It had recommended an amendment to the Merchant Banker Regulation that governs Citizen Investment Trust.

In addition, a market maker cannot perform even after an amendment to the regulation as Nepal Stock Exchange (Nepse)’s trading system lacks a window for a market maker. 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.

“A market maker will not be able to operate at present even after necessary adjustments in regulations if Nepse does not upgrade its existing software,” said Gautam.

Source: THT