CHALLENGES FACING NIGERIAN DISCOUNT HOUSES IN THE MEDIUM TO LONG TERM ABSTRACT The paper traced the emergence of discount houses to the need for an institutional arrangement for the facilitation of the trading in short-term securities at both the primary and secondary segments of the money market. The British example was seen as the model with countries under the British influence including Ghana, Zimbabwe, and Nigeria adopting the system to deepen, the money market. The discount house operations in Nigeria had reflected mixed developments with their fortunes declining due to some environmental factors as well as factors internal to the houses. The need for the discount houses to reposition their activities in the medium to long term was emphasized. The challenges confronting the houses call for proactive management on the part of the houses and creation of a more conducive operational environment by the regulatory authorities. The paper concluded by indicating that in the long run, the efficiency and competence of the houses in the discharge of their responsibilities would determine their relevance and survival rather than imposition of assigned areas of specialization through guidelines.
however, the emergence of discount houses as major operators in the money markets of some economies has often been as a result of the need for institutional support to foster the growth of an active money market, deepen money market transactions and promote active trading in private sector financial instruments. In Britain, which is generally regarded as the origin of discount houses, these institutions evolved to provide a link between the banks and the Bank of England by serving as a channel for the interchange of banks’ funds as well as providing access to the Bank of England as a lender of last resort.
In other countries where discount houses are in operation their immediate preoccupation at inception have always been the development of money market and the promotion of secondary market for eligible securities. For example, in Ghana discount houses have extended their operations to cover dealings in private sector bills while in Zimbabwe they have operated as intermediaries between the banks and monetary authorities in liquidity management. In Nigeria, the need to strengthen the performance of the money market, through the creation of an intermediary between the banks and Central Bank of Nigeria (CBN), especially as the preparation for the adoption of open market operations (OMO) as the main tool of monetary
management gathered momentum, and gave impetus to the establishment of discount houses in 1993. Since then, the houses have been able to integrate themselves into the Nigerian financial structure.
The essence of this paper is to appraise the performance of discount houses in Nigeria. At least, with a view to articulating the challenges facing the houses in the medium to long run. The paper has been structured into five sections, including the introduction. inhibiting their effective performance. Section II outlines the constraints The Challenges confronting the
discount houses are contained in Section IV; while Section V summarizes and concludes the paper.
At inception in 1993, discount house operations were modest as this type of institution was new, while they tried to establish their relevance. Similarly, they were able to adjust quickly in their efforts at integrating their operations within the Nigerian financial system. Also, the initial effort of the houses made them credible avenues for banks call deposits as the confidence in the
banking system suffered because of the lingering problem of distress in the system. The resolution of distress in the banking system made the
environment more conducive for efficient funds management. However, the introduction of the autonomous foreign exchange market...
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