What is your position on the ongoing consolidation for stock broking
firms?
firms?
In theory, we do not know what the outcome will be. That will become clearer at the end of March. But what we are saying is that if you look at the economics of doing any business, when you have many more players in that business, it means that the revenue stream of that business is shared among many more players. One of the reasons I think we have some resistance to reducing the cost on the buy or sell side of transactions is because it is not profitable given the many players that we have. So, we need to keep the cost to the ordinary person as high as possible so that some people can remain in business. Based on some of our findings there are people who were not even profitable as it stands today and some of the complaints, the bulk of it actually comes from unauthorised sale of shares. Some of what we are investigating today can suggest that some firms are actually dipping into the monies of some of their clients in order to survive.
That’s also why we’ve seen some resistance on our programme to have custodians. Where the custodians’ keep assets in good custody and the broker focuses on intermediation.
Are you expecting AMCON to help resuscitate the sector?
That was why we delayed the issue of the focus on what should be the structure of the market until March because we wanted to know the impact of AMCON. That is why the state of the brokerage community is not an issue today. I earlier explained that one of the issues that we are looking at is what happens in the other part of the world. The capital market business is global. We cannot work in isolation. The second aspect is what works for our own country and, therefore, looking at some of the issues as regards to our country are key.
Are there issues that immediately need to be addressed in the economy?
The Gross Domestic Product (GDP) of our country is give or take, $200 billion, while the one for South Africa is $300 billion but the market capitalisation of South Africa’s equities is 15 times that of Nigeria. Their population is 45 million people and we are 150 million people; how can we explain it to ourselves? So, there are things that need to be fixed and the capital market for us is that channel. I believe jobs are being created in the real economy and we must make sure we position the real economy by not making it too expensive for people to raise money.
What is SEC doing for small scale entrepreneurs?
I believe last year we approved Primex, a fourth tier market called alternative investment market in other countries. The Exchange had made an application to us in this respect. Today, we have three tiers. There are 15 securities outside the first tier market and there is no trading at all on them. The trading actually happens among the top 20 or 50 companies. So, there are things that need to be done also about liquidity. So, it is not just about listing but also about the issue of trading activities. Therefore with the Exchange applying to have an alternative investment market, we think it is a real opportunity to have companies that are smaller in size look at listing as an opportunity.
We also learnt from other markets what some other countries do to help companies think about listing. South Africa for example has this arrangement where they have advisers who basically sponsor a company to list and stay with you throughout the period you are listed.
Is the Nigeria Bottling Company still trading? The NSE is yet to place the stock on technical suspension?
What I will like is first to confirm that, yes, they have made an application and we have had an opportunity to interact with them to try to understand what is driving their decision. It’s been a very useful interaction because what they shared with us is that their shareholders are shopping for about $14 billion over the next three years to modernise their plants in Nigeria. Bringing that investment which more than exceeds their current capitalisation they will need to, at this time, be de-listed. In our engagement, they focused also on the much broader contribution that they are making to the economy.
They specifically said they have about 300,000 distribution partners. They impact directly on five million people. We considered them a blue chip company and we will continue to engage with them to understand their decision.
What is the position of market makers under this dispensation?
Their position has not changed under this dispensation. In fact as I said earlier, we do think they are extremely important particularly with fixed income securities that we need to look at. Of course, market making requires much more significant capital than our capital requirements for brokers or dealers.
What is the level of compliance for operators in the capital market?
What we are saying is that there is much more data reporting, in terms of timeliness and quality, because we have been very rigorous in that respect, both ourselves and the Exchange. When the Exchange for example, enforced the exiting capital requirements which I understand was set up in 2005, some brokers thought they were new requirements.
The greatest problems we have with brokers besides capital base and dipping hands into clients account, are illegal sales. Other side of complain is when they actually sell, they do not remit the money. At times, they could write unsolicited margin facility and sell without the consent of those investors on the basis that they have a lien placed on those securities. Most of the time, you now find out that there is no clear agreement between them and the investors when they granted those facilities. Those are some of the issues that we are managing with the broker dealers.
Do you also have problems with registrars?
When it comes to certificate verification, we have some challenges with the register. We can understand with them because of our level of technology. At times, people open account several years back and after about 10 or 15 years later they come to sign and their signatures are irregular and the registrars find it difficult to actually identify that signature as belonging to that original person. These are some of the reasons that made us start thinking of moving away from the structure we have and considering custodians that will have a more robust system of identification of investors.
The greatest challenge is ignorance across board. Most of the board members of the stock brokering firms do not know that they are supposed to be regulated by SEC. When you attempt to regulate them it is like you are straying into a strange field. We have made some efforts in the compliance; in Nigeria ignorance is no excuse. From what we have found, through being much more innovative, as to how we enforce our regulation, people can begin to hear us unlike in the past when they were not hearing us.
When is the new leadership team of the NSE coming on board?
We endorsed the decision of the council submitted to us after doing our due diligence I believe on January 18, and the exchange could not make an offer or interact with any of those without ratification. What they have suggested to us is that April 4 is when they expect the subject to negotiating the terms of contract.
It is not a solid deadline but that is what they proposed to us. What we are happy with is that they have gone through an extremely rigorous first class process by any standard. And we have the opportunity in addition to doing our due diligence, to interact with the CEO designate, Mr Oscar Onyema and Executive Director IT and Market Operation-designate, Mr Ade Bajomo. In our interaction with them, we could understand why they emerged given how competitive the process was as the selected candidate. There are two other positions Executive Director of listing and Executive Director of business strategy which are still outstanding.
Why did SEC launch a new code of corporate governance when it could not enforce the one made in 2003?
The code of corporate governance has to keep with the times and we have learnt since 2003 from our own experience. In fact, our board has asked specifically that we also present lessons that we learnt from the 2007/2009 crisis as part of what they use to judge the quality of the code that will become effective in April.
We are also being inspired by what happened in other parts of the world, and code should evolve with time. We have also looked at issues about how to enhance enforcement and that is why I mentioned that because generally code rather than rule are principle based. The approach is to seek what I’ll consider carrot for how to sensitise people to comply with the code. So, one thing we have introduced this time is that companies will have to report in their annual report their level of compliance and explain why their level is not 100 per cent. If I am an investor and a company tells me my level of compliance with the code of corporate governance is 10 per cent, won’t I be silly to invest in such company. So, what we expect will happen is that it will motivate people to comply with the code.
What is SEC doing on bringing the telecommunications and upstream companies for listing on the Exchange?
The decision to come to the market has many aspects to it. A company would of course like to come to the market when the market is strong itself, because it will want to reap the most value from that market. So, even if everything was okay, the issues around investors’ confidence will impact the timing of the company coming to the market. But specifically with the mandate that we got from the National Economic Management Team (NEMT) or from the President through the NEMT, what the President has said is that the upstream oil and gas is a strategic sector of this country and it has done very well being that most of the revenue of the country comes from the sector. The telecom, most of them, are 10 to 15 years old. They have done very well, in one particular case that I often cite; they made most of their money from this country. And two, what they would like to see, some democratisation of the success of these companies. The upstream oil and gas companies, I am sure that if some of the those from the Niger Delta participated in some of these companies or their communities, maybe there would be a better understanding of the issue the kind of companies that need to be managed, there is benefit to the brand to do that. But this is a pre-market it would be their decision.
How far can SEC be held responsible for what happened in the capital market?
I think we have been very clear to take part of the blame because the business of the capital market and regulations is not a static process. That is why we are learning from our mistakes and trying to improve ourselves and the market. The feedback we have gotten from some quarters is that we are much more very forceful. The reason is because we recognised that sometimes people need us to be more forceful so that they can understand what it is that we stand for. So, agree that we are trying to learn our lessons so that we will not make the same mistake again in the future.
What is your view on the N40 billion which SEC was alleged to have spent in four years?
It is not true that SEC made N40 billion in four years and wasted it. That is far from what happened, it wasn’t even self interest because I wasn’t here as at that time so I can stand up on behalf of the SEC and say that one of the greatest things about us is that we actually have money in reserves and in fact we are trying hard to protect that money for this market because one of the principles of the International Organisation of Securities Commission (IOSCO) where any regulator in a securities market belongs to. We are about 180 members. Number one principle is operation independent which is further defined by having financial independence. For us as a regulator, it is extremely important for this market particularly giving the many needs that the government has, it is power, road, health facilities or education, and the needs are enormous.
How is SEC monitoring the use of proceeds from bond by state governments?
I can say to you that in other parts of the world, the SEC does not monitor the use of proceeds. When I arrived in January, my colleague explained this issue to me. I asked them why, they explained it, I didn’t understand it and I didn’t accept it but 12 months on, I understand why they go and inspect. We actually have people that go and do inspection. There is no other place I know and I covered markets in Asia, Europe, Latin America and the US. And there is nowhere I have heard that the uses of proceeds are monitored by the regulator. It stretches our resources because we are asked to do so many things such as being an engineer. What we need as an environment that people will say they will do something and they will do it.
What is SEC doing about the position of Udo Udoma as the chairman of the board and also on the board of some quoted companies?
Yes, he can be on the board of a quoted company even as he is the chairman of the board of SEC. It happens in other parts of the world and he didn’t appoint himself. He was actually invited to the board.
When will the forensic report of the NSE be released by SEC?
There is actually an injunction that those who may be affected by the result of the forensic report had sought an injunction that we will not circulate. In fact our Board has not seen the report because the injunction came before it could sit.
You can consider yourself a law enforcement agency without also following the law. So, we are not going to share this except the ruling allows us. For us, what is more important is to take steps related to making sure that a visible symbol of the NSE is what it should be. So, whether the report was published or not, to us it is not an issue. But we are not hiding the report. The report had not been submitted to us by the time of the injunction.
Will there be a likely super registrar for all listed companies?
One thing the Central Bank of Nigeria said and I wasn’t at the financial sector regulatory sub-division committee, was that there was actually work that has been done by a firm which suggested that because its an economy of skilled business that it does not make sense to have more than one registrar. It has not been implemented. So, the CBN explained that this was a proposal that has been made to the financial sector regulatory sub-division committee. The report suggested that it was something being implemented. My personal view is that it is something that will ultimately be looked at.
Has SEC licenced new exchanges?
We are not aware of this. What we have been asked for is the over the counter platforms. Our view is that maybe the exchange does not like it, so we think that it is important to encourage competition in our market. After all, the fixed income market in Nigeria is done over the counter, so if we can formalise this market or even have trading on unlisted securities that is fine. Today the exchanges we have are the NSE and the Abuja Securities Exchange Commission.
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