THE T&T subsidiary of Jamaica’s NCB Financial Group, is readying itself to start market making on the Trinidad and Tobago Stock Exchange (TTSE), Steven Gooden, the chairman of Port of Spain-based NCB Merchant Bank said in an interview with the Sunday Express yesterday.
He delivered a presentation on Friday on ‘The Role of the Market Maker in Building Stronger Capital Markets in the Caribbean’ at the TTSE’s 40th anniversary conference at the Hyatt Regency.
Speaking as the president of the Jamaica Security Dealers Association, Gooden defined a market maker as “a market participant, typically a securities dealer (broker) in our market, that buys and sells securities at all times for its own books, in return for a profit.”
He said market makers help to ensure the smooth functioning of financial markets, thereby facilitating the buying and selling of securities.
Market makers do this “by buying securities when there is an oversupply in the market and selling securities when there is an undersupply,” said the executive.
“When the demand for a security is low, and supply is high, the market maker will buy the securities. When the converse is true market makers will supply the market with securities to meet the demand. In doing so, they help to ensure adequate volume of securities so trades can be done seamlessly at all times, that is, market makers provide liquidity,” he told the conference participants. Regarding the benefits that market makers bring to stock markets, Gooden cited the following:
• In providing liquidity to financial markets, they help to support price discovery. They stand ready to provide quotes for securities, thus providing the market with pricing where trades can actually take place.
• Market depth is also closely related to liquidity. In deep markets, large transactions can be executed without having a significant impact on prices;
• In times of financial stress, markets become more…and bid ask spreads are wide due to supply and demand imbalances, the participation of market makers increases significantly
• They play a critical role in ensuring the success of primary market transactions (Initial Public Offerings of shares). By taking a position in these transactions, potentially taking up excess supply of the primary market security, market makers allow more primary market transactions to be executed faster.
Gooden explained that NCB Capital Markets, which is the parent company of NCB Merchant Bank, plays the role of market maker in both the primary (IPO) market and the secondary market.
NCB Capital Markets served as lead broker for six IPOs on the Jamaica Stock Exchange between 2017 and 2021. On all occasions, the securities firm acquired stocks in the companies for its own account. This included the TransJamaican Highway IPO, which raised US$100 million in 2020. NCB Capital Markets acquired shares worth US$15 million in that IPO.
Jamaican brokerage houses also collaborate to make markets when large blocks of shares are available for sale by institutional investors.
Gooden cited the offer for sale of 13 per cent of Seprod’s shares in 2018 and 15 per cent of the shares in Jamaican cigarette distributor Carreras. He said NCB Capital Markets acquired some of the shares in those offering for its own book.
“In many instances when there is excess supply of any stock in the market, we do take a position,” said Gooden.
The financial executive said more important than the balance sheet of an individual brokerage firm is that there should be multiple participants in the ecosystem, playing the role of market makers.
“That is because market making requires the active buying and selling of securities, so the more market makers in the ecosystem, the more dynamic it becomes.”
He said most of the 15 brokerage houses in Jamaica participate in market making.
IMPROVING MARKET STRUCTURE: Eva Mitchell, CEO of the Trinidad and Tobago Stock Exchange.
On the issue of the securities dealer’s balance sheets and their ability to engage in market making, Gooden said: “At the end of the day the securities dealer or brokerage firm needs to ascertain its risk appetite and in ascertaining its risk appetite, needs to determine how much money they want to allocate to market making,” said Gooden.
Asked if NCB Merchant Bank (T&T) has the balance sheet to be a market maker on the TTSE, Gooden, who is the CEO of Kingston-based NCB Capital Markets, said: “It has the balance sheet and it can also rely on the balance sheet of the wider NCB group. So, we are not limited to the balance sheet here in T&T.”
NCB Merchant Bank became the seventh brokerage firm registered with the TTSE at an official ceremony on June 8, 2021. Gooden said the securities firm has spent the time since it became a member of the TTSE building out its internal capabilities infrastructure.
“I would say 2023 is when you are going to see NCB Merchant Bank’s presence in the T&T marketplace.”
The TTSE now has eight member firms following the official registration and signing ceremony to welcome Sheppard Stockbroking, a wholly owned subsidiary of Sheppard Securities, on July 22, 2022.
‘Investors want comfort’
CEO of the TTSE, Eva Mitchell spoke about market making in a September 20, 2022 interview with Kalilah Reynolds, host of the Jamaican webcast business programme, “Taking Stock”.
“When we talk about liquidity, investors want to have comfort that when they buy a stock, or take a position in a stock, they are able to sell it off.
“That is any sort of concern that any investor would want. You would not want to hold on to a stock and not be able to sell it when you so desire.
“To do that, the Exchange is looking at ways that we could now improve our market structure and add market players or market makers within our market structure who would step in and provide the level of liquidity for certain securities.
“So, for example, one particular security is listed on our Exchange and an investor wants to get out of the security or buy the security, there is a structure that exists on a regional and international level where the Exchange works with a dedicated person along with that listed company.
There is some some sort of structure or organised way where the investor is able to move in and out of positions easily without having to worry about how liquid this particular security is.
