“On a long enough timeline, the survival rate for everyone drops to zero”

 

A stock exchange is an entity which provides “trading” facilities for stock brokers and traders, to trade stocks and other securities, not internal politics.

 

The Nigerian Stock Exchange (NSE) has unfortunately found itself doing more of the latter lately than the former. This ought to be expected and accepted as a consequence of the way we choose to conduct business in our clime; yet it does not make it an acceptable practice.

 

Emmanuel Ikazoboh, the Interim Administrator of the NSE must have therefore found a unique formula to combine the two – and along the way found an uncommon way to thrive in uncertainty and ambiguity.

 

Not only is his tenure as an ‘interim’ administrator now a subject of a countdown – seemingly a day-to-day affair; he also has the responsibility to follow through on the agenda of his principals – the Securities and Exchange Commission (SEC) – whom, it appears, was left with little choice than to intervene in the crisis that threatened to stall the recovery of the market (in part due to its acquiesces on a number of decisions) absence of decorum and civility from the legally emasculated council.

 

The now maligned ‘stock exchange press corps’ should take credit for creating the conditions precedent to justify action. This was before Emmanuel Ikazoboh was head hunted for the job.

 

Upon take over, much to the relief of everyone else except those affected, the SEC presented the task Emmanuel Ikhazoboh’s task as a simple one – to hold forth during a short transition period and deliver on specific tasks.

 

These tasks include – the conduct of a financial audit of the accounts of the NSE, the reconstitution of a council for the stock exchange pending the determination of the court case that created the lacuna, the recruitment of a substantive CEO and Executive Directors for the NSE, submission of a report/recommendations on key issues, chief of which is the demutualisation plan; and lastly, to oversee the day to day management of the affairs of the exchange during the intervening period.

 

Given the background to the take-over and the subsequent fallout therefrom, one can only imagine the sleepless nights he has had in steadying the ship and maintaining a modicum of decorum, in the light of intrigues which continue to play out.

 

In this silly season – rumours and deliberate misrepresentations from all sides often rise quickly to the top of the information matrix, givingwell-intentioned actions colours painted by ‘the insider’ sharing the information.

 

The notion of a market populated by ‘insiders’ conjures in the mind an economic centre dominated by an unnatural distrust of intent, motives and purpose.

 

Events in the last few weeks reinforced this unfortunate consequence and have conspired to distort the interventionist role being played by the ‘sole administrator’ of the NSE. Taken together, it would suggest a shifting of the goal post, albeit one focused on a rear view mirror approach – to the obvious disaffection of stakeholders uninterested in the politics of the fight for the control of the stock exchange.

 

Chasing Shadows at the Stock Exchange

 

This group of concerned investors, operators and analyst desire for a market that is able to recover steadily and help them build up their engagements in the market, recover losses and re-establish itself as the most veritable source of wealth creation in the country. To this group of people, this change period represents a unique opportunity to learn from the past and herald in the much touted market reform and development phase required.

 

Matters which do not promote these ideals therefore, it is reasoned, should not be made a front and centre issue, especially when it can make use of the law courts (given that the independence of SEC as an independent arbitrator has now been impaired by virtue of its take-over of the NSE).

 

The NSE today, functions in effect, under a sole administratorship without a determinate date/timeline/milestone for delivering on its mandate. These has its downsides and it is believed that the administrator may find himself bugged down with issues not concomitant with the rationale for the changes that took place, no matter how lofty and altruistic the natural intentions are/were.

 

Some decision downsides which have manifested to reveal this chasm include:

1. The management of the qualified 2009 management accounts and the ‘process’ for demanding refunds for 2006 to 2008 payments to council members;

2. The handling of the Accenture managed executive recruitment where no one was found suitable after numerous media announcements of a high volume of responses, leading to a rerun of the advertisement for the job (previously globally advertised); and

3. The recent retrogressive decision on the media/press involvement in the NSE building.

 

Let us start from the last one.

 

NSE bars journalists from Live Coverage, Shuts Press Centre

 

If the natural intent of the reform promised by SEC was to enthrone a regime founded on the very best ideals of transparency and full-disclosure in a public entity for which the take-over was premised on the wider public interest, then the disclosure made by The Guardian Newspapers (not formally refuted by the NSE and reproduced here http://www.proshareng.com/news/12391 makes quite a disturbing reading.

 

Recall that the media obtained validated and published exposes on sensitive council activities, SEC planned decisions, NSE actions on company – even before those affected knew about it – much to the satisfaction and approval of the SEC/NSE.

 

Immediately after August 6, 2010 – the SEC/NSE actively engaged the business journalists to communicate developments on the Accenture recruitment drive, changes in the council, new listings and explanations of developments at the exchange, staff changes, and SEC actually released a schedule of council members who were alleged to have received productivity bonuses.

 

What has changed in a matter of weeks?

 

Stock prices move in relation to fluctuations in supply and demand. This relationship between supply and demand is tied into the type of news reports that are issued at any particular moment.

 

Negative news will normally cause individuals to sell stocks. Bad earnings reports, poor corporate governance, economic and political uncertainty, going concern issues, bad press through scandals and unexpected, unfortunate occurrences will translate to selling pressure and a decrease in stock price. Conversely, positive news will translate into buying pressure and an increase in stock price.

 

It is however, if not impossible, to capitalize on news. The impact of new information on a stock or the market itself, depends on how unexpected the news is. This is because the market is always building future expectations into prices. For example, if a company comes out with better-than-expected profits, the stock’s price will likely jump. But, if that same profit was expected by a majority of investors, the stock’s price will likely remain the same as the profit would have already been factored into the stock price.

 

Thus, it is unexpected news – and not just any news – that helps drive prices.

 

The most significant development in the Nigerian financial landscape in the last 100 days was neither the expected action of the CBN on August 14, 2009 nor the far-reaching nature/severity of the pronouncements – as the market was expectant and agreed on the need for a change.

 

The management of information and the consistent/sustained ‘negative’ news cycle have proven to be the most crucial factor in the market downturn. The days before and after the take over was sustained by a cycle of negative news that suggested wrongly to the public that the money being questioned by SEC/NSE was ‘stolen’ from investors – this was not only wrong but misleading.

 

That the market has recovered must be put down to a ‘miracle’.

 

If the SEC/NSE wants to tune the bourse into a ‘secret cult’ – creating two tiers of groups that can access information & disseminate such to the public based on preferential access – that can only further damage the market.

 

It is a known fact that most credible platforms do not need to be on the floor of the market to access both ‘sensational’ news items and credible market facts & developments. This decision must therefore be a knee jerk reaction to a development that was not well thought through.

 

If this action stands – be it the closure of the ‘press centre’ or the banning of ‘field officers’ from reporting activities from the bourse; it directly undermines the principle of market efficiency – that which thrives when there exists a perfect flow of information from and to the market.

 

Behind this principle, if the SEC/NSE needs reminding is the notion that – anybody whose interest can and will be affected by any information from and about the market – should have access to it.

 

The unfortunate elevation of the politics of the exchange over and above the principles of free access to information is not only disheartening but ill-informed; and should be reversed.

 

The SEC initiated this roadmap and therefore cannot change the rules of the game midway without consequences. They must realize that the Press Centre was not created as a luxury addition to the NSE but appreciate that the decision was informed by the recognition of the critical role the media (not only those favourably disposed to the current administration) plays in ensuring a seamless exchange of information between participants in the market.

 

Is the media just a sideshow to financial markets – or do the dire pronouncements of newshounds have any real effect on share prices? In a new study, an economist finds the tail really does wag the dog.

Paul Tetlock researched how the media can affect the stock market. In a study published in theJournal of Finance, Tetlock, an associate professor of finance at the McCombs School of Business at the University of Texas – Austin, tests the daily “Abreast of the Market” column in the Wall Street Journal.

 

He concluded that “these findings contrast somewhat with my Wall Street Journal study, where I find that media content may predict overreactions in market prices,” Tetlock adds. “The key difference lies in the nature of the content: Some stories in the financial press convey real information, whereas other stories are written to entertain their readers.”

 

The NSE can take a cue from this and recognise that the media is not only relevant when you need to push an agenda. A compromised media (as we have in Nigeria) can serve that purpose. For a truly transparent regulatory environment to emerge, all shades of opinion must be allowed, leaving the market to decide who is factual, useful and relevant. That is not the job of the NSE to decide –either as a properly functioning entity or as an interim administration.

 

 

The Accenture Double Advertisement

 

Enough has been said, albeit in hushed tones about this embarrassing development, that there is very little that needs be said.

 

If only for professional etiquette, Accenture should issue a statement to clarify why it considered it necessary to re-publish the advertisement for the CEO and ED positions. Needless to add, the proviso requesting all those that applied before need not re-apply, suggested that they did not meet the unknown benchmark set for the position.

 

This was after it basked in the euphoria created by leading media publication of the success attendant to the responses so far received for each position – generously advertised in local and international media platforms (print and online including the FT).

 

The ludicrous excuse bandied around that some persons did not apply owing to the uncertainty surrounding the take-over by the SEC cannot fly in the face of common sense and reasoned logic.

 

This is a first – in terms of repeat advertisement for a specific job – and undermines the logic provide by the SEC for the intervention i.e. that the NSE did not have any intentions to actively secure an independent candidate for the position.

 

We now know this was false and a factual untruth.

 

 

The NSE, Productivity Bonus and Secretary of Council

 

On October 05, 2010 we broke an exclusive story about the ‘alleged’ productivity bonus collected by members of council of the exchange based on inside ‘revelations’.

 

On the same day the story broke, the SEC issued a press release restricting their disclosure to 2006 to 2008, leaving out the year 2005.

 

The reactions and counter-reactions since then from individuals whose names were published have been varied – ranging from anger to embarrassment.

 

Since the story broke and the SEC validated same, the management accounts of the NSE for the year ended 2009; has been pushed out in the media as a qualified accounts providing justification to the demand for the refund.

 

We align ourselves with the demand for expenditure in the 2008 financial year when the market lost almost half its value.

 

However, revelations since then have cast aspersions on the motive and veracity of the claim that a productivity bonus was paid.

 

Investigations by the Proshare NI team revealed the following:

1.    That the NSE relied on the minutes of meeting written by Josephine Igbinosun, secretary of the council of the NSE, in concluding that a ‘productivity bonus was paid’;

2.    That this disclosure guided the forensic auditors in their work;

3.    That the auditors and the sole administrator have not disclosed how this item was classified in the books – notwithstanding that the minutes of meeting has traditionally held a sacred place in the work of auditors in validating actual intent;

4.    That the accounting treatment of these transaction(s) was different from what the minutes represented;

5.    That the same secretary of council, Mrs Josephine Igbinosun had written to those that collected sums of money that “the amounts received were meant for industrial travels to enable members acquaint themselves with the best practices and regulations of stock exchanges in other jurisdictions”

6.    That this obvious inconsistency should have been resolved before an action was deemed necessary as it places unsuspecting recipients in a difficult position against all sense of natural justice;

7.    That evidence abounds that the sums paid out were not required to be retired as they bore evidence of well thought out payments to members desirous of raising their game;

8.    That the October 31, 2010 deadline set for council members affected (including the caveat that they would be banned from all capital market activities if they failed to make good the payment demanded for the 3 years prior to the qualified accounts) is at best an intimidation to comply – for a matter otherwise left for the courts to adjudicate over;

9.    That the attempts by the administrator to indicate that key figures are willing to pay and the display of the minutes equally amount to subtle ‘nudges’ towards affirmation of the objective belies the fact that only the 2008/09 accounts was qualified and as such defines the limitations of their ‘natural’ claim for refund which is backed by purely management thesis on performance/decline in the market;

10.That the practice of paying council members an ‘industrial travel allowance’ has been ongoing since 1982 – one that led to the recruitment of the erstwhile DG of the stock exchange – Prof. Ndi Okereke-Onyuike from the NYSE on a salary of N11,200k (with dollars at parity then) by Mobolaji Bank-Anthony – thus making the payment of allowances relative earnings a practice in the stock exchange a ritual (subject to determination that this is illegal – and if so should be considered from when it started, a matter which the auditors over the years should provide an explanation for).

 

It appears clear that the unresolved issue of whether a technical error by the company secretary, Mrs. Josephine Igbinosun in issuing a letter to unsuspecting council members and her letter to this set of people raises a lot of concerns for which the NSE/SEC should seek a legal interpretation.

 

If as most believe, that the payments to council members in a year when the market was tanking should not have taken place – provided the impetus to act – the years for which the action taken raises doubt about motives.

 

If the motivation was a reversal of a trend unsupported by CAMA and the Memart, then this age-long practice must be addressed in a manner that suggests that certain respectable individuals are being protected.

 

We understand that an injunction has been sought and obtained by some council members to stop the SEC and NSE from continuing this action and plans of theirs.

 

Informed reasoning suggests that those affected by this disclosure have been earmarked to be removed from the about-to-be-reconstituted council.

 

This is one of those situations that lend credence to the perception game that is ongoing.

 

Frankly, this is needless, the NSE has a duty to determine the best practice for the exchange at this date and if certain practices have been ongoing for so long; it is imperative that the NSE/SEC be clear on how it addresses this to avoid playing into the hands of fifth columnist.

 

The NSE must review its handling of affairs and its rear view mirror approach to champion a new SRO regime for the NSE.

 

 

Source: Proshare

See our Reports to Download The Nigerian Stock Exchange

Productivity/Surplus Sharing Paid to Council Members

Year 2005 to 2008