OMO Policy Revision Deepens Market Pressure as August Losses Hit N2.5tn

Nigeria’s stock market lost N2.5 trillion in August, even as a late-month rebound followed confirmation that the country would return to FTSE Russell’s Frontier Market classification.

The market capitalisation of listed companies on the Nigerian Exchange fell to N155.8266 trillion on Aug. 28, from N158.326 trillion at the end of July. The NGX All-Share Index also declined 1.6% during the month, closing at 241,298.47 points compared with 245,283.68 points at its opening. Despite the monthly decline, the index remained up 55.06% year to date.

The Central Bank of Nigeria’s revised Open Market Operations framework added a new dimension to market competition. In a circular dated Aug. 12, Acting Financial Markets Director Okey Umeano said eligible investors could participate in primary and secondary OMO markets through deposit money banks. The eligible group includes individuals, corporates and non-bank financial institutions.

“OMO participation (primary and secondary markets) shall be open to all eligible investors through Deposit Money Banks (DMBs). Eligible investors include individuals, corporates and non-bank financial institutions. DMBs shall continue to submit bids and settle transactions on behalf of their customers,” the circular stated.

The revised rules removed restrictions that had prevented banks from accessing the CBN’s Discount Window after participating in the Nigerian Foreign Exchange Market or buying government securities at primary auctions. However, banks still cannot use the Discount Window and participate in OMO auctions on the same day.

Analysts cited in the report said broader access to OMO bills could draw funds away from equities and into fixed-income assets, particularly because of their attractive yields. The stock market nevertheless gained N1.67 trillion between Aug. 27 and 28, after FTSE Russell confirmed that Nigeria’s reclassification from Unclassified to Frontier Market status would take effect at the market open on Sept. 21. FTSE Russell made the confirmation after an additional review of the country’s move from a T+2 to T+1 settlement cycle and concerns that the change could create an effective prefunding requirement for international institutional investors.

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OMO participation (primary and secondary markets) shall be open to all eligible investors through Deposit Money Banks (DMBs). Eligible investors include individuals, corporates and non-bank financial institutions. DMBs shall continue to submit bids and settle transactions on behalf of their customers.