Apparently your team was caught napping when the Interim Administrator and stockbrokers met last Saturday, 06th November 2010, to discuss proposed changes in the operations of the Nigerian stock market.

 

The proxy management of The Exchange wanted to sell to the stockbrokers a proposal to extend the trading hours and have cash settlement for transactions routed through Custodians other than the CSCS.

 

The meeting also dwelt briefly on a proposal to remove the 5% price fluctuation band in the market. Proshare was caught napping because you have not given your readers benefit of proceedings at this meeting, which followed the stockbrokers’ annual conference in Abuja.

 

These are significant propositions, which deserve serious examination, given their implications for the structure and organisation of our stock market.

 

To start with, stockbrokers roundly rejected the propositions.

 

For one, given the dip in activity, is this really the time to contemplate extending the trading hours? More so, from their experience, it is when trading goes beyond the extant regulation time that funny transactions take place on The Exchange.

 

Stockbrokers also rejected the proposed settlement arrangement whereby investors would pay for their purchases through Custodians and receive payment for their sales through their banks.

 

According to the interim management of The Exchange, the proposal was aimed at dealing with unauthorised sales in the market and conversion of investors’ deposit for shares – an unsavory practice in the market.

 

Stockbrokers however believed that the real issue is with enforcing the rules of the market rather than introducing changes that would encumber processes in the market and take it back in time.

 

It is instructive that stockbrokers rejected these propositions; raising the following questions: where is the current leadership of the market coming from? Do they have a conceptual and practical understanding of the market?

 

Is it sufficient to justify extension of trading hours on the need to have the market open when Americans wake from their sleep? If foreign investors consider the market attractive, they will find a way of following it through their sleeping hours. 

 

Furthermore, is there a correlation between the duration of trading and volume traded/pricing efficiency? The statistics do not point in this direction.

 

It begs the question as to why a new settlement system is proposed, if the issue is to deal with rogue stockbrokers; the decision criteria will be based on the answer to a simple question: Have we enforced the rules and failed?

 

This appears to be an attempt to create jobs for some persons or group of people. This is only the logical extrapolation here given that the proposal does not align with modern settlement systems? Should we not be considering making the CSCS a central counterparty in the market processes instead?

 

Is it that those running the exchange do not know what to do at the appropriate time or simply bent on pushing through all the recommendations from the SEC?

 

Perhaps, this is an attempt to justify the 100days since taking over but experimenting with the market is not the way to go. The market practices and processes is not something to tamper with without careful considerations.

Source: Proshare