CIT role as market maker delayed

KATHMANDU, JULY 27: 

Citizens Investment Trust will require more time than expected to start operating as a market maker in secondary market due to the absence of a legal and technical infrastructure.

The committee formed to study the modality for Citizens Investment Trust (CIT)’s wholesale entry into the capital market has pointed out the need for a regulation that will spell out the area of operation, and mode of entry and exit from shares among others. The existing Merchant Banker Regulation that governs CIT needs to include the provision regarding a market maker for the purpose.

The committee involves officials from CIT and capital market regulator — Securities Board of Nepal (Sebon). Finance Ministry, in February, had directed CIT to prepare a mechanism to start operations as a market maker to absorb excess shares and release them when there is supply shortage to bring a balance in share market. Investors had specifically asked for institutional investors to bring a balance in the stock market.

“Regulation needs to determine the method for purchasing and selling shares, along with the function of the market maker, the tasks they can perform and the quoting mechanism, so that it has a defined area of operation,” said head of capital market at CIT Narayan Ghimire. Even if the Merchant Banker Regulation 2008 is amended and incorporates all the necessary legal provisions, a market maker cannot perform without necessary adjustment to the stock exchange’s bylaws and trading system.

“Nepse’s bylaws do not mention about a market maker at all, giving rise to operational difficulties for quoting system for market makers,” said official at Sebon involved in the study. Nepse’s bylaws are up for amendment at Sebon, so the required provisions can be included while it 

is being amended. 

However, preparing a legal infrastructure will not be enough to bring a market maker into action in absence of an access window for market makers at Nepse’s trading system. 

A market maker can quote both a buy and sell price in a financial instrument and make bulk purchases or sales unlike other ordinary investors. It stands ready with a firm ask and bid price ensuring liquidity.

Source: THT