05 January 2011

The Nigerian Stock Exchange (NSE) has directed all stockbroking firms to separate their own accounts from clients accounts as part of efforts to instil discipline and sanity in the stock market.

 

Given the nature of their business in Nigeria, most operators function as broker-dealers. This means that they trade stocks on behalf of clients and themselves.

 

They are required to maintain separate accounts for accountability and transparency. However, many of the operators combine both accounts and in some cases divert clients money for their own purposes.

 

THISDAY checks revealed that the NSE, disturbed by the rising cases of misappropriation of clients funds, has directed all broking firms to maintain separate accounts. It was gathered that while the brokers had been informed of this development earlier, a circular was formally sent out to them last week on the subject.

 

It was discovered that the combination of both accounts was affecting the ability of some firms to pay their clients after selling their shares. Because the monies were put in the same account, any action by banks to freeze the accounts of defaulting broking firms affect the clients money as well.

 

This was becoming a problem because whenever a stockbroking firm has such an issue with its bankers, it affects its ability to pay clients. That is why the accounts need to be separated so that if broker has any issue with its bankers over dealing account, it will not affect the client’s fund, a source close to NSE said last Monday.

 

However, a stockbroker said that the directive would pose a big challenge for the market and the operators. We go out to get these clients and if you say we should open separate accounts for them, will the commission we will charge be enough to maintain such accounts? It is a difficult situation. But we will see out it goes, the broker said.

 

Stockbrokers have been under severe heat in the last months as the NSE turned its focus on them. The NSE recently clamped down on stockbroking firms for failure to submit their financial statements in accordance with rules governing dealing members of the Exchange.

 

Some of them have been suspended from trading by the Exchange. Following their inability to cope with the pressure of NSE on regular rendition of their financial reports, some stockbroking firms are considering merging with others.

 

Investigations by THISDAY had shown that some of the stockbroking firms are finding it difficult to cope with financial and human capital needed to comply with the disclosure requirement.

It was gathered that given the reporting format set by the NSE, the brokers need to employ professionals such as accountants and other compliance officers.

 

Given the state of the market and the unpreparedness of many of the brokers, they are finding it difficult to cope. In the first place, they lack the capacity and due to the poor state of the market, they do not have the funds to employ the professionals. I can tell you that many of the broking firms are considering merging resources so as to cope with the situation,a source had said.

 

Source: Thisday