By Udeme Ekwere

Capital market activities improved significantly, last year, with the establishment of the Asset Management Corporation of Nigeria. However, the recent announcement by the Securities and Exchange Commission that it is working towards reducing the number of stockbrokers through consolidation has generated a controversy, which experts say may affect the market trend. Udeme Ekwere reports. Recently, the Securities and Exchange Commission said consolidation was inevitable among stockbrokers if operations in the Nigerian capital market must meet international standards. But stockbrokers have criticised the move, which will mean a reduction in the number of stockbroking houses in the near future.

According to them, consolidation, which could have worked in some other countries, may not be needed in the Nigerian capital market at the moment.

The Director-General, SEC, Ms. Arunma Oteh, who made the decision known, said the regulatory agency was working on reducing the number of stockbrokers “from about 250 to a manageable size.”

She noted that this would be part of SEC’s efforts towards sanitising the Nigerian capital market in 2011, adding that the commission was working with some other committees on the modalities for the consolidation.

According to her, in some other markets in Africa, where consolidation of stockbroking firms had taken place, their capital markets have done very well with fewer stockbroking firms.

She said, “We have studied some African markets on this issue, and we have seen that it is working for them. For instance, Malaysia has just 35 brokers in a market that is even bigger than the Nigerian capital market. Also, in the South African market, there are 60 stockbrokers, with a market size that is 15 times bigger than the Nigerian market.

“But in Nigeria, we have 250 brokers in our market. We know that in the economies of doing business, when there are many more players, the revenue has to be shared among these players, which of course, increases transaction costs.”

Oteh had explained that findings by SEC had revealed that some operators in the market were not making profits and that there had been a lot of complaints from investors about unauthorised sales. She accused operators of indiscipline as regards clients’ funds, saying that “some firms have been dipping hands into the funds of their clients without authorisation.”

She said all the critical funding issues would be addressed if there was consolidation among operators, noting that fraudulent stockbrokers would ease themselves out of the market without waiting to be forced out.

However, the market operators, who spoke in separate interviews with our correspondent, all agreed that the timing was not right for consolidation in the Nigerian market. According to them, there are many more important issues on growth and investor confidence that must be addressed for the market to return to the path of sustainable profitability.

For instance, the Managing Director, Ideal Securities Limited, Mr. George Okafor, who argued that consolidation was not important in the market right now, noted that SEC, the Nigerian Stock Exchange and other market regulators were only avoiding urgent issues that needed to be addressed.

He said, “Consolidation is not the issue in the market right now. What the regulators need to do is to find a lasting solution to the crisis rocking the market currently. We can see that the market has been recording a steady decline in the last few weeks, and this should cause some worry for them.

“If I am a broker, and you are a broker, my business is not affected by yours. There is enough ground to play on. We should not be embarking on consolidation for consolidation sake, or because some other countries are doing it. It should depend on our own peculiar practice and culture.”

He noted that a Fund such as that committed by the Central Bank of Nigeria to boosting the manufacturing and aviation industries could rather be extended to the stockbroking firms.

“Stockbrokers are very important in this country, because the capital market remains a major driver of economic growth and the stockbrokers are the major players. So, they should be supported in all the right ways,” he added.

The Vice-President, Association of Stockbroking Houses of Nigeria, Mr. Emeka Madubuike, noted that there should be proper communication on important issues such as the consolidation of activities among stockbrokers.

According to him, it is not right for the regulatory body to force such policies on the stockbrokers without due consultation.

He had said, “I was really surprised to learn of that issue, and like other brokers, I just saw the information on the pages of the newspapers. And I can tell you that this is the first time I am getting that information.

“I do not have all the details about the consolidation; I do not know what form it will be taking, or when it will be done. But my opinion is that we should have been contacted before such information goes to press. Even when the banks had to consolidate, all the parties involved were called together and the matter was discussed, I do not think that they had to read it from the papers.”

Madubuike, who is also the Managing Director, Compass Investment and Securities Limited, argued that there should have been an in-house discussion among SEC, the NSE and market operators before journalists were briefed.

To the Chief Executive Officer, Lambeth Trust and Investment Company Limited, Mr. David Adonri, the case of Nigeria’s banking industry is a vivid illustration of how forced consolidation can derail the orderly growth of an entire industry.

According to him, the emergence of 25 mega banks out of the 89 that existed before the consolidation made the monetary regulators to introduce microfinance banks to fill the void and cater for the neglected needs of the Small and Medium Scale Enterprises, which had no access to credit from the mega banks.

Adonri stated, “A similar thing will happen to retail clients in the stockbroking industry if the number of firms are reduced. The few large firms that will emerge will set prohibitive minimum requirements, which retail investors will not be able to meet, thus denying them access to investment opportunities.

“And so, because brokers do not create risk assets for themselves with investors’ funds, their need for capital is only limited to the infrastructure they require to efficiently deliver their professional services.”

According to him, experience has shown that any consolidation that works is that, which is driven internally by industries’ peculiar needs, rather than that, which is imposed by external forces.

Another broker, whose firm was one of the 61 stockbroking firms suspended by the NSE, said that the regulators should allow brokers to deal with one issue at a time.

He said, “While some of us are still trying to recover from the shock of our suspension last month, SEC is coming up with another issue. It is not right at this time, or do they want the market to completely go under?

“You can see how much money has been lost in the market between the period of the suspension and now. It is amazing how much a little action like that can affect the market because activities here are information-based. So, talking about any kind of consolidation at this time is not right at all.

Stockbrokers and SEC must immediately resolve issues relating to the planned consolidation, to save the market from another crisis, experts note.

Source: Punch