By Udeme Ekwere

Monday, 10 Jan 2011

Beginning from this week, the Nigerian Stock Exchange will be imposing sanctions on erring stock broking firms.

Specifically, firms that have not complied with the capital requirement for operations in the NSE are to be punished by the market regulator.

The Interim Administrator, NSE, Mr. Emmanuel Ikazoboh, disclosed this during a compliance meeting between the capital market regulators and chief executive officers of stock broking firms.

He noted that appropriate regulatory enforcement of operations of stockbroking firms would commence this week, adding that this had to be done to ensure transparency in the market.

Ikazoboh said that the issue of capital inadequacy had become a cause for concern for the NSE, because it posed grave risk to the entire market, adding that it led to issues of mixing up funds with those of their clients, as well as unauthorised sales.

He said, ”Consequently, from April 1, this year, the market will adopt a new approach called Mixed Custodianship to safeguard investors‘ assets. This approach will prevail for the next one year after which its effects will be assessed.”

The mixed custodianship approach is a system where investors’ accounts will be separated from the stockbroking firm and be held by a custodian.

Ikazoboh added that the NSE will not tolerate any form of capital inadequacy and all balance sheets will be reviewed and inspected to uncover any window dressing.”

In her presentation, the Director-General, Securities and Exchange Commission, Ms. Arunma Oteh, reiterated the necessity to safeguard investors‘ assets in the market in line with global best practices.

This, according to her, is necessary as concrete measures have to be taken to move the market to meet world-class standard.

She said, ”85 per cent of complaints received by the regulators from investors are usually on issues of unauthorised sales, hence, there is the need to take far reaching measures encapsulated in the adoption of mixed custodianship approach currently operational in South Africa.”

She explained that people had been led in the past to erroneously believe that the NSE was a member of the World Federation of Stock Exchanges whereas, it was not true. She added that ”Consequently, SEC has fashioned out new rules awaiting ministerial approval to re-position the market and enable the NSE meet the minimum standards for the membership.”

Stockbrokers at the meeting, however, appealed for more time to reflect on the mixed custodianship policy and requested further engagement on the capital adequacy issue considering the recent intervention of the Asset Management Corporation of Nigeria and its expected effect on revaluation of stock assets that were eroded due to unforseen market forces.

They also cautioned on implementation of hasty policies where vigorous enforcement of existing rules would suffice.

Source: Punch