The Central Bank of Nigeria (CBN) and financial market dealers have itemised key steps they need to take to deepen market liquidity and ensure easy settlement of transactions.
Speaking during the sixth Financial Markets conference last week in Lagos, Director, Financial Markets Department, Central Bank of Nigeria (CBN), Mrs. Angela Sere-Ejembi, explained that liquid markets have ability to convert any asset to cash or near cash measures in terms of Cost or Price, depth or volume, resilience- orderly flow to correct imbalances.
Also important in market liquidity is the immediacy/ease of execution/settlement, stable bid and ask spreads.
Speaking on the theme: “Regulatory Framework and Effects on Liquid Markets”, she said money is the most liquid financial asset and is the live wire of any economy.
“The efficient flow from surplus to deficit promotes the smooth flow of transactions and eliminates the challenges of a barter economy. Central Banks’ must supply and maintain a level of liquidity consistent with sustainable growth,” she said. She said that regulatory guidelines safeguard the integrity of the market space and enhance market liquidity.
Sere-Ejembi, who was represented by Deputy Director, CBN, Mrs. Aderinola Shonekan, said failure to do so will render financial institutions incapable of performing their traditional intermediation functions, send wrong signals to economic agents and initiate a run on the banking system and ultimately distort economic growth.
However, she said a liquid market requires regulation sets out the requirements to operate within a certain market for prospective participants.
“Regulation provides standards in a market and seeks to limit uncertainty, enhances resilience to shocks, effectiveness of Fiscal and Monetary policy tools, improves stakeholders’ confidence and participation,” she said.
The absence of regulation usually results in a prevalence of informal and unethical practices of market participants, forgone growth opportunities when faced with an unstable financial system.
The CBN uses its monetary program to monitor and manage banking system liquidity, operates through the interbank money market to ensure financial system stability, adequate money supply and low inflation and supervises the domestic money market and provides financial and technical support to financial institutions.
Managing Director/CEO FSDH Merchant Bank Ltd, Mrs. Smith will speak on Risk Management as Effective Tools to Drive Liquidity and Transparency, said liquidity is a company’s ability to raise cash when it needs it. She said the two main determinants of liquidity are ability to convert assets to cash, and debt servicing capacity. “The process of making explicitly and openly available. In the context of the financial world, transparency is the extent to which investors and other stakeholders have ready access to required financial information about a company,” he said.
FMDA Chairman, Aig-Imoukhuede, spoke on “Impact of Monetary Policy Framework and Liquid Markets on The Economy. He said the primary objective of monetary policy is price stability.
“The price stability goal is attained when the general price level in the domestic economy remains as low and stable as possible in order to foster sustainable economic growth,” he said.
According to him, instability in the general price level is undesirable as it brings about uncertainty and instability in the economy, thereby discouraging investment and hampering economic growth.
In his presentation, Bloomberg’s Head of Middle East and Africa Sellside & Electronic Trading Solutions. Mr. Femi Okulaja explained that ensuring financial stability would require achieving price stability and managing economic fluctuations, enhancing the capacity of the financial system to pool domestic savings and foreign capital and enabling efficient risk-sharing.
The welcome was given by FMDA President, Bayo Adeyemo while the Managing Director, Economic Associates, Ayo Teriba spoke on National Economic Outlook and Essential Tools for Participation in Global Financial Markets.