10.13.2010 

Writes that last week’s suspension of companies by Nigerian Stock Exchange (NSE) over non compliance with listing requirements and punishment of two brokers by Chartered Institute of Stockbrokers (CIS) for infractions are actions in line with efforts to instil discipline and restore investors’ confidence in the market.

These may not be the best of times for investors in the nation’s stock market due to their dwindled fortunes and the continuous volatility being witnessed in prices of shares. After weeks of a free-fall, the market has witnessed a recovery that led to two consecutive weeks of an uptrend.Although the future is still cloudy due to several factors – persistent low investors’ confidence, liquidity squeeze and the current politics – induced uncertainty in the economy, there are hopes that investors would end this year better than last year.

It is a consensus among most stakeholders that some actions taken last week by the Nigerian Stock Exchange (NSE) and the Chartered Institute of Stockbrokers (CIS) would go a long way in the quest to restore investors’ confidence.Timely dissemination of information by listed companies and honest services to investors by stockbrokers are key factors that help in building confidence among investors. However, these factors have been a thing of concern to all stakeholders. Lack of inadequate and untimely information about the financial performance of quoted companies has deprived most investors of making timely investment decisions.

Besides, fraudulent practices by some brokers have discouraged many investors from patronising the market. However, the NSE and CIS took actions considered very import in the efforts to restore investors’ confidence and instil discipline in the market last week. The NSE halted the movement in the prices of some stocks and served others de-listing  notice for their failure to comply with the post listing requirement of regular submission of quarterly and yearly financial results.

A total of 25 stocks, including 12 insurance firms were affected by the NSE’s action.  They included: Daar Communications Plc, owners of AIT and Ray Power, Big Treat Plc, Vono Products Plc, Mtech Plc, Afroil Plc, Union Diagnostic and Clinical Services Plc, Lennards Plc, Alumaco Plc, Tourist Company of Nigeria Plc, MTI Plc, Pharma-Deko Plc, SCOA Plc, and Nigerian Sewing Machine Plc. Soon after the punishment was meted out to the companies many of them began to release their results last week.

In a similar move to restore investors’ confidence, the CIS punished two stockbrokers for selling the shares of their clients without authorisation. The Disciplinary Tribunal of CIS, explained that the brokers, Mr. Alex Ogbebor and Mr. Samson Ailenbuade, sometime in 2006, in Lagos, used the machinery of Foresight Securities and Investment Limited, to sell their clients shares without authorisation.

Their clients, Miss Deborah Ololade Ariremako and Mr. Francis Oladoyinbo Ariremako, had complained to the CIS that their 8,000 units of Guaranty Trust Bank shares, 800 units of Total Nigeria Plc shares, 1,214 units of UACN shares and 1,697 units of First Bank of Nigeria Plc shares respectively, were sold without their knowledge, consent or authority.The brokers were also said to have failed to verify a purported letter of authority/mandate sent by their clients before proceeding to sell the shares.The CIS also said that the brokers paid the proceeds of the sale of clients’ shares to a third party (Mrs. Bose Dinyo) instead of paying the right owners.

“As a result, you have committed an offence contrary and punishable under regulation 5(vi) and 6(a) (ii) of the members regulations and code of conduct (2005) and section 11 (i) (a) of the CIS Act 105 of 1992. That, having seen and considered the evidence adduced and having heard the plea of not guilty to counts 1, 2, 3, the CIS finds Ogbebor and Ailenbuade guilty of all charges,” the CIS said.

Consequently, the CIS ordered the brokers to buy back the shares and restore all the accrued benefits which include bonuses and dividends where applicable without one month from yesterday.Besides, the CIS directed that brokers should be reprimanded in writing by the Registrar of the Institute.

Welcome Actions

Before last week, the NSE had over a month ago took a similar action, which was hailed by stakeholders who said it would improve the lot of the market. According to them, while the post-listing requirements are met to strengthen the market, enforcement of these requirements in the past has been very weak. Hence, the latest efforts of the NSE have been commended by stakeholders.

For instance, the Managing Director of Partnership Investment Company Limited, Mr. Victor Ogienwonyi, said that post-listing requirements are important for investors and the Exchange, explaining that it is one of the ways to information on the activities of the companies and an opportunity to analyse the information provided.

“Non-compliance and continued failure to furnish the Exchange with required information puts the Exchange and investors in dark about their activities. Failure in the past to enforce rules is one of the reasons cited by foreign investors as undermining confidence in the market. The market is rules based. Not enforcing the rules is a sign of weakness of the market,” he said.

Also speaking, the Managing Director of Investments Centre Limited, Mr. Ifeanyi Odunwa, said that the decision of the NSE is in order, saying that “we have come to a stage where all manner of infringements, indiscipline and non-compliance with regulations should be severely punished.

“I don’t see any reason quoted companies, which have signed post-listing requirements will find it difficult to comply. Quoted companies owe regulators, market operators, investors and general public the responsibility to periodically disclose the state of affairs in their companies as well as matters of material importance to their business,” he said.Odunwa stressed that, going forward, regulators should be steadfast in the enforcement of market rules and regulations.In the opinion of investors, the action of the NSE showed that the management is now alive to its responsibilities. The National Coordinator of Shareholders United Front, Mr. Gbenga Idowu, declared, “It is a right step in the right direction.”

One of the founding members of Nigeria Shareholders Solidarity Association and a leading activist, Alhaji Gbadebo Olatokunbo, said penalising erring companies is a signal that it is no longer business as usual.He said, “The action is great and it shows that the new NSE management is alive to its responsibilities. Besides, it is a signal to the companies in particular and the capital market in general that it is no longer business as usual. We must always abide by the rules.”

The General Secretary, Zonal Shareholders Coordinating Committee, Mrs. Oludewa Thorpe, said the decision by the NSE to suspend the companies is very good.“The companies should not enjoy the prestige, esteem and benefit of listing without carrying out the responsibility. Many have not held any annual general meetings for many years. Shareholders like us are suffering but management get salaries and management fees (where applicable). They should be delisted after the suspension (if they fail to comply), Thorpe, who is also a lawyer said.

Code of Ethics

On the other hand, the decision of CIS to punish two brokers last week did not come as a surprise.Although similarly actions had been taken in the past, the latest move came after the professional body for stockbrokers in Nigeria issued a set of codes to brokers.

According to the Registrar/Chief Executive Officer of CIS, Mr. Toyin Olorunleke, explained that the code of ethics demand that members and registered students of the CIS shall at all times: Observe high standards of honesty, integrity and fairness in dealing with clients, prospective clients, employers, employees, peers, colleagues in the securities and investment profession and others, related to professional activities, so as to enhance public confidence in the profession.

“They must perform their professional activities with due and reasonable skill, care, prudence and diligence and in accordance with the current best industry practice and the high ethical, professional and technical standards expected of them as members and registered students of the Institute,” he said.

He added that they must always act in the best interests of the securities and investment profession, their clients and prospective clients, and place the interests of the profession, clients and prospective clients before their own personal interests or that of their employers, employees, peers, colleagues in the investment profession or those of any third party and use their best endeavours not to put themselves in a situation where a conflict of interest arises.

He stated: “They must take reasonable care to maintain professional independence and objectivity and to make fair judgments when conducting securities and investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.“Practise and encourage others to practise in a professional and ethical manner that will reflect credit on themselves and the securities and investment profession. In addition, they must continuously strive to maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. And most all, they must promote the integrity of, and uphold the rules governing securities and investment industry,” he added.

Duties to Clients

Under duties to clients, CIS said that stockbrokers shall exercise diligence and thoroughness in investment analysis, making investment recommendations or in taking investment actions.“They must have a reasonable basis for their investment research, recommendations, and investment management or action, supported by thorough and diligent research and analysis. They shall maintain appropriate records to support the reasonableness of their investment research, recommendations, and investment management. Make reasonable efforts to avoid any material misrepresentation in disseminating investment information.

“Prepare analysis with professional diligence and make every reasonable effort to check the reliability and truthfulness of information from external sources and distinguish between facts and opinions when disseminating investment recommendations, and forecasts which shall be labelled as such. They shall disclose the basic principles and methods used for valuation, securities’ selection, and portfolio construction, and any material changes to them; all material facts and risk factors shall be adequately disclosed,” CIS said.

Responsibilities to CIS

Apart from covering the general issues in the market, the code specified responsibilities of brokers to CIS and the profession. These include: Members and registered students shall maintain knowledge of and comply with all applicable laws, rules and regulations of any government, governmental agency, regulatory organisation, licensing agency, or professional association governing their professional activities; They shall not knowingly participate in or assist any violation of such laws, rules, regulations and CIS Code of code

“They must comply with the standards of the profession notwithstanding pressure from clients, employers, peers, employees or others to compromise those standards. CIS said that members and registered students are personally responsible and accountable for their conduct, must allow and exercise individual autonomy such as freedom of speech, and must not discriminate against any person because of gender, race, or religion. In the event of conflict, members and registered students must comply with the more strict law, rule, regulation, code or standard,” the Institute declared.

 

Professional Misconduct

CIS explained that members and registered students must not engage in any illegal, fraudulent, dishonest, deceitful or misleading professional conduct that might have a negative impact on their reputation, integrity, or competence as members and registered students or bring dishonour or disrepute upon the Institute or its other members.

“Brokers must not engage in any conduct that compromises the reputation or integrity of the Institute or the CIS designation or the integrity, validity, or security of the CIS examinations and any other examinations supervised by or conducted on behalf of other organisations by the Institute.”

Co-operation and Whistle Blowing

According to CIS, members and registered students must cooperate to serve the objectives of the code and the standards. Members and registered students must ensure all information, documents, reports and returns required by the CIS are produced accurately, honestly and when required, and that the information, documents, reports and returns are true and correct.

“Members and registered students must cooperate with an appropriate authority and the CIS to identify and address wrongdoing and incompetence in the profession. Brokers, when they know of illegal conduct must report that conduct to an appropriate authority in accordance with the law where their disclosure is protected by law.

“Collectively, members and registered students are responsible for the standards of the profession and shall report to the CIS breaches of the code of ethics and standards. Members and registered students must not discriminate or take other adverse action against a person who discloses illegal conduct or a breach of the code of ethics and standards,” the CIS stated.

Source:ThisDay