December 01, 2010; 1420 hrs, Sofitel, Ikoyi, Lagos, Nigeria

 “The best way to destroy an enemy is to make him a friend.”

 

When Max Lerner, in the book – Actions and Passions (1949) said “Do not confuse your vested interests with ethics”; could he have envisaged a scenario like the breaking news of yesterday on the interview panel set up for the recruitment of the CEO of The Nigerian Stock Exchange?

 

In the absence of a denial or rebuttal from the SEC/NSE, it will be safe to appropriate that the substance of the story is credible and that any future rebuttal would be a pathetic response to an otherwise process explanation which was snubbed.

 

Is it about ethics, basic territorial/turf ego, a vested interest or there truly is something not right about the involvement of persons from the JSE in the appointment of the NSE CEO.

 

Stakeholders have gone into a graveyard silence as usual. Is this due to the suddenness of the disclosure, shock or a conspiratorial mute?

 

Our experience in releasing the ‘market information’ has taught us that a wise regulator or SRO should avoid secrecy for its own sake.

 

The choice of venue and composition of the panel was nothing but a mockery of what it should be. Not only did it represent a new dimension to the publicised role of Accenture and the Council of the Stock Exchange (now comprising of less than seven members including the Interim administrator and the interim president).

 

Is capital market awareness/knowledge in Nigeria so low that we cannot by ourselves constitute an interview panel? Who is paying for the expenses of the officials of JSE? Is the money in addition to what was paid to Accenture? Will Nigerians ever know the full cost of recruiting a new CEO for The Nigerian Stock Exchange? This must be the most expensive CEO recruitment exercise in the world, but this article is not about the recruitment exercise or the cost of achieving it but the role of the JSE.

 

 

What about the JSE and NSE?

The reality of acknowledging the JSE as a competitor lends credence to the national sovereignty question. Yet we must quickly recognise that it is this same JSE that is ‘hand-holding’ us through the qualification process to be admitted into the world federation of Exchanges – as our promoters.

 

On the face of it, it would appear that we have come a long way from the position in June 2010 when the challenge of a weak corporate governance environment in the Nigerian capital market was a discouragement to the Johannesburg Stock Exchange (JSE) Limited of South Africa from partnering with the Nigerian Stock Exchange (NSE) and quoted companies.

 

As part of its long-term strategies to promote the growth of capital markets in Africa, the JSE in February 2009 launched the African Board. JSE’s Business Development Manager, Africa Desk, JSE, Mr. Geoff Musekiwa, told THISDAY last July that they were eyeing some companies in Nigeria to list on Africa‘s biggest bourse. Oando Plc is the only Nigerian firm that is currently listed on the main board of the JSE Limited while Pinnacle Point Group is the only South African firm listed on the NSE.

 

However, prospects of more Nigerian firms listing on the JSE appeared slim following issues of corporate governance raised by the Chief Executive Officer of JSE Limited, Mr. Russell Loubser.

 

Reuters quoted Loubser as admitting looking towards having a robust relationship with the NSE and quoted companies but complained about poor corporate governance.

 

After calling off a deal to buy a strategic stake in the Mauritius Stock Exchange last March, Reuters asked Loubser other plans they had in mind – including looking into Nigeria’s way. 

 

And he said: “There are possibilities there and Nigeria is too big to ignore but at the same time Nigeria has a lot to do about things like corporate governance. We will continue to look at that part of the market but it is not without its dangers.”

 

Musekiwa had last July told THISDAY that discussions were on with many companies across the continent to patronise the African Board in order to enjoy the attendant benefits.

 

“We have been to Nigeria, had discussions with regulators, operators and companies. We are hoping to get some listing from Nigeria. Oando Plc that is listed on the JSE has enjoyed tremendous exposure and we believe more Nigerian firms should have access to the JSE for more exposure,” he said. He said that the African Board has been developed to attract foreign capital to the African market, by allowing investors access to the very exciting opportunities that exist in Africa.

 

During the launch of the African Board in 2009, Executive Head for Africa at JSE Limited, Maureen Dlamini, said it will list only African companies. She said: “Foreign investors approached the JSE looking for ways to diversify their portfolios and the African Board is a response to that expressed need.”

 

She listed the benefits of getting listed on the African Board to include increased trading hoursand greater exposure, increased liquidity (which is attractive to foreign investors); improved product offering, strategic positioning for the rest of Africa as well as the favourable listing requirements, fees and obligations.

 

 

The Concern – Collaboration vs. Market Sovereignty

JSE is a market that the NSE is looking to beat in the very near future! The JSE needs new revenue streams and are sure to consider alternative markets as a way to achieve this after local exchanges in the SA region appear not to have embraced them.

 

Can you imagine officials of Guinness Plc in the interview panel for the recruitment of a new CEO for Nigerian Breweries Plc? Or officials of Nestle Plc in a Cadbury Plc CEO recruitment panel? No I cannot!

 

An informed school of thought however believes that if the JSE (and by extension the LSE and NYSE) is a competitor to the NSE, why has the NSE been collaborating with it? The analogy is extended in the inverse thus – “would the CEO of Guinness Plc lead a road show to NB Plc to promote its products or would officials of NB Plc engage those of Guinness Plc in order to develop their company?”

 

This school of thought rightly believes that inter-exchange “competition” especially between markets at different stages of development, cannot and must not be compared to what operates between firms like Guinness Plc and NB Plc.

 

Beyond the limitations of the analogy used, the difference in approach to the ‘beyond an arms length’ relationship as we see suggest that as a market, either our fears are being played up based on the historical suspicion we have or there are issues worth considering that we must not gloss over.

 

For an environment still challenged with corporate governance issues, unresolved public interest vs. free market enterprise issues associated with our emerging democracy and an absence of a culture of standard ethical practice; such a relationship rightly should attract more than a passing interest.

 

At a very base level, The NB Plc and Guinness Plc analogy might have shown us that while loose collaborations (as described through road shows which are no more than courtesy exchanges between two markets) and technical co-operations are considered acceptable business practices in an increasingly co-petition structured marketplace, having a much more sophisticated partner involved in selecting who drives the local bourse will need to be an act not shrouded in secrecy, if done within the spirit and intent of the existing relationship.

 

The JSE believes it can harness the opportunities in the continent better through its expertise. It also believes that the NSE can be managed more efficiently and produce greater returns using the latest technology. These views are equally shared by all professionals in our marketplace. I guess that is why there is so much interest on two key issues:

1.    who becomes the CEO of the NSE and the issues related thereto; and

2.    When, How and who manages the necessary demutualisation project of the NSE?

 

However, the national sovereignty argument remains a potent point that a nation can only overlook to its own detriment.

 

Why did JSE fail in its overture to the Southern Africa exchanges? Why is the integration of West African stock exchanges protracted? Why did the recent Singapore Stock Exchange and Australia Stock Exchange attempted merger fail? The instances are many. Nationalism is a real factor for serious minded nations. Where is political independence without economic independence? Alternatively, where is political security without economic security?

 

It would be wrong to use the Roadshows to USA and UK to accept uncritically the present liaison between the NSE and JSE. These are parallels and cannot be compared. The road show, if one recollects, was aimed at attracting investment inflow into Nigeria through the exchange. JSE is looking to attract LISTINGS from Nigeria to South Africa. Whereas the former will boost the liquidity of the NSE and facilitate corporate financing and boost local business activity, the JSE strategy aims to move liquidity away from Nigeria and concentrate it in South Africa at the expense of Nigerian financial intermediaries, for instance.

 

What would our financial institutions be doing if Nigerian companies can raise all the money they need in South Africa? What would all these stockbroking firms be doing if activity in listed companies is in South Africa rather than Nigeria? What happens to SEC’s revenue from Transaction Fees? The economic implications are more. And there are regulatory issues.

 

The US/UK road shows by the NSE may not be for any intention to go to bed with NYSE or LSE. In the same vein, the trading platform arrangement must be far from the kind of present engagement with JSE. Exchanges sell market technology as a business. Thus, JSE trades off the LSE platform and is yet independent of LSE in all ramifications. In any case, any body conversant with the organisation of competition among stock exchanges would know that it’s regional in a significant proportion. Between LSE/NYSE and JSE, JSE is the competitor to NSE.

 

 

Questions! Questions!! Questions!!!

Having resolved the question of competitor status, we must now look inwards into the internal dynamics that created this situation. Whatever happened to the Committee of Council of The NSE that ought to appoint its own CEO – i.e. the Finance & General Purpose Committee? Is Maccido the only member of this Committee? Perhaps, the signal coming from this is that The Exchange currently has no board in the true sense of the word – if a board committee cannot be constituted to at least near fullness, if not full. This should worry all persons interested in the concept and practice of corporate governance.

 

In the wake of the SEC intervention in the management of The NSE, have we sacrificed corporate governance or is this expected fallout? With a seriously depleted board, can what is going on in the governance arrangement at The Exchange approximate the ideals of corporate governance? In view of the governance weaknesses, what moral capacity has The Exchange to superintend corporate governance in listed companies?

 

The fact is that JSE remains keen on listings in Nigeria (as any focused market should) and this will impact the revenue stream of the NSE which for now depends largely on listings. Having them superintend over the recruitment of the NSE CEO raises a conflict of interest question.

 

Furthermore, history clearly shows that the various encroachment activities of the JSE with regards to ‘seeking’ market share from other markets is well documented from Ghana via Kenya all the way to Botswana! In each case, the approach was rejected. Now, inviting them into our home without safeguards and in secrecy raises concerns.

 

 

Echoes from Stakeholders

The strength of an exchange lies in its ability to provide an arena for firms looking to raise capital when needed and also for the securities created as a result of the listing to be traded in a secondary market. 

 

All these must be done within a controlled and regulated environment. JSE is not the biggest exchange in Africa (see Egypt) and it has seen its ability to attract new listings dwindle in recent years. As a result, it recently re-acquired the bond exchange of SA (BESA) which was hived off many years ago in order to increase its product offering. 

 

The JSE tried to get the small Southern African Exchanges to trade off its platform but this was rejected by even the smallest exchange. It then tried to create its Africa Board on which it hoped to get companies listed in other countries to come to JSE for a secondary listing. The only problem with this is the experience of Oando which has NOT been a successful listing on the JSE and as yet, has no liquidity.

 

So how do we benefit? We can learn from them in terms of product development but this has always been the case without any deepening of the relationship. Previously, when looking to create new products, the NSE worked with JSE, LSE, NYSE and other established operators in order to create the ideal products for Nigeria. 

 

In terms of our World Federation of Exchanges membership, JSE remains Nigeria’s sponsor (though reluctantly it must be said) and what has been achieved so far?

 

In the last four (4) years, they have not helped us in any way to achieve the standards required to meet the WFE requirements and that is why we are still NOT members. Have they called any meetings? NO! Have they liaised with WFE on our behalf? NO! Have they taken a trip to Nigeria to visit us (as a mentor should do) and see how we are progressing? NO! 

 

So, why the sudden interest in us now? It appears obvious that they need to expand their potential sphere of influence thereby improving their ability to attract listings from Nigeria.Ironically, the LSE is doing just the same thing and for the same reasons. Is anybody gathering intelligence on this? It is certainly hoped that this recruitment intervention or support should not be pitched as part of the working arrangement.

 

That would be logic turned upside down – inviting a competitor who as recently as last year was looking to convince our companies to move to their exchange (thereby leading to the erosion of value and possible weakening of the NSE) to assist in selecting its CEO. This cannot be consistent with the expectations of those who view the development as a simple knowledge and competence leveraging exercise. What makes the purist think they are likely to choose the best option in our best interest?

 

 

Close

What the action taken by SEC is inferring is that Nigeria as a country does not have individuals with the experience or intellectual capacity to recruit the head of the NSE.

 

Why not bring someone from the London or US Stock Exchange with a more advanced market. We need an NSE CEO that can take our market to the next level (i.e., get the exchange out of the rout of only buying and selling stocks, or bonds, etc). We need advance trading strategies introduced – options trading (basic option at least).

 

We are not against an African collaboration but benefiting from a loose collaboration as we have with the JSE and others has already been addressed by ASEA. Recall that the issue of respecting national institutions was addressed which is why the issue of a Super Exchange was rejectedby every exchange apart from the JSE. 

 

It is a fact that the JSE has more developed products and we can benefit from knowledge sharing and support, but we do not need to be owned/managed/teleguided by them to achieve this. 

 

The good thing about all this development is that the JSE will not be able to achieve its goal or any individual/group acquire the NSE (directly or through proxies) without addressing the issues which SEC/Interim Administration of the NSE has glossed over – the fate of the shares given to the founding members who have now formally communicated their position to the Exchange/SEC to set the records straight.           

 

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