Goddy Egene writes on the renewed efforts of the Securities and Exchange Commission (SEC) to reposition the nation’s capital market in 2012 and beyond

The last four years have not been the best for investors in the nation’s capital market as their investments have plummeted below their expectations.

By their nature stock markets fluctuate but the last global financial crisis hit many investors so hard that they are scared to look the way of equities market for now. Many Nigerian investors are among this class of investors who are not in a haste to return to the market due to the bad experience  they had and the losses they recorded.

Regulators have realised this and have been striving to put strategies in place to ensure stronger regulation going forward so as to give investors better protection.

In Nigeria, the Securities and Exchange Commission (SEC) has, in the past two years, has taken steps that are aimed at restoring investor confidence and reposition the market to play its role in the development of the Nigerian economy.

And despite the current challenges the market is passing through, the Director-General of the SEC, Ms. Arunma Oteh, is convinced that the capital market is still very essential to the actualisation of the Federal Government’s economic transformation agenda.

Reviewing the performance of the market in 2011 and stating efforts  being made to improve its performance in 2012 and beyond recently Oteh declared that a structured capital market could  sustain government’s ability to finance critical infrastructure.

“It can also energize key sectors of the economy such as agriculture and facilitate the diversification of Nigeria’s economic base from its dependence on oil. Indeed, a healthy capital market can fast track Nigeria’s emergence as a leading economy in the world by the year 2020 (Vision 20:2020),” he said.

The Capital Market in 2011
Although the market ended the 2011 with decline, Oteh said  the market had actually began on a positive note in  response to a series of transformative initiatives undertaken by the SEC to stabilise and nurture the market.

According to her, unfortunately, the gains which characterised the first half of 2011 were reversed in the second half of the year.

She linked the reversal  in fortunes to  the fragile global economy, especially the downgrade of the United State credit rating and the Euro zone debt crises; the banking crisis which led to the nationalisation of three Nigerian banks; post-election security concerns; investor apathy and the political crisis in Cote d’Ivoire and some Middle East and North African (MENA) countries.

“At the end of 2011, equities market capitalisation declined to N6.5 trillion and the NSE ASI fell to 20,730.63, representing a 16.3 per cent  drop from the closing figures of 2010. Similarly, the total trading volume dropped to N644.2billion representing a 19 per cent decrease from N797.5 billion recorded in 2010. Average daily transaction also declined to N2.68 billion in 2011, a drop from the 2010’s daily average of N3.32 billion,” she said.

The decline in the Nigerian market notwithstanding,  the SEC boss noted that  it was a better performance  when compared to the performance of a number of global markets.

“Nigeria’s decline of 16 per cent in market capitalisation should therefore, be viewed in the context of a 22.8 per cent  stock market decline in China, 16.3 per cent in Brazil, 22.6 per cent in India, 48.9 per cent in Egypt, 26 per cent in Italy, 30.3 per cent in Argentina, 18.4 per cent in France,” she said.

Besides, Oteh disclosed that the downward trend in the market did not impede primary issuance in 2011. According to her, a total of 16 new issues (six rights Issues, nine  private placements and one  preferences shares Issue) worth N141.78 billion  were concluded in the  2011, representing an increase of 18 per cent in value over the 2010 figure of N120.34 billion through 12 issues.

She added that the  bond market witnessed significant activities in 2011.

She said: “While the Federal Government issued a total of 28 new tranches of outstanding bonds valued at N791.27 trillion, a total of N183.79 billion worth of new fixed income securities was issued by states and corporates. State government issuers were Benue (N13 billion), Niger (N9 billion), Delta (N50 billion) and Ekiti (N25 billion), totalling N97 billion variously applied for infrastructure project across the individual states.”

SEC’s Achievements in 2011
If   the performance of the capital markets depends solely on  achievements of regulators then the Nigerian market would have witnessed full recovery in 2011 considering some of the milestones SEC recorded in the continued  efforts to reposition the market.

Stating some  of the achievements, Oteh, in 2011, she said that  the commission focused  primarily on strengthening the  its  capacity to discharge its mandate of market regulation and development.

“The commission introduced among others, a new code of corporate governance, served as a vanguard for the conversion to International Financial Reporting Standard (IFRS) strengthened the mechanism for Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT),” she said.

According to her, the human capacity of the regulator was strengthened in 2011, saying that apart from the employment of 52 young Nigerian professionals (including lawyers, economists, accountants among others) under its newly established Young Professionals Programme (YPP), the apex regulator continued to  train existing members of staff in the critical mandate areas.

“Of note is the training facilitated by the International Monetary Fund (IMF) aimed at strengthening supervision in relation to AML/CFT. The training also covered enhancing the effectiveness and efficiency of risk-based approach to management and supervision for capital market operators and regulators,” she said.

In terms of  technology, the SEC boss  said that the Commission commenced the process of overhauling its Information and Communication Technology (ICT)system.

“Recognising the potential of the world wide web(www) to engender public education, awareness and interaction, the Commission undertook concrete steps to reposition its website in 2011. The old corporate website was reconstructed.

The new site is more functional, interactive and user friendly. A unique feature of the site is the complaints, observations and other feedback pane which allow for greater interaction with the Commission.

The Commission has also registered its presence on a number of social media platforms such as Twitter and Facebook,” she explained.

Oteh added that the commission also commenced the development of an application software for electronic registration and returns analysis and succeeded in building a shared technology system for common services and capabilities.

In area of markets development, she said that commission, in collaboration with the United States SEC and the USAID, organised a week-long training workshop  which attracted 346 market operators and financial sector regulators. 

“The workshop served as a forum for exchange of ideas on global best practices in the development and regulation of capital markets and  also provided participants with up-to-date tools to professionally handle enforcement and contemporary market development and oversight duties particularly in the light of global economic and financial challenges,” she said.

SEC also improved its regulatory and surveillance mechanism so as improve market transparency, efficiency and competitiveness. Consequently, 29 new/amended rules were incorporated into the Commission’s Rules and Regulations in 2011, covering areas such as securities lending and borrowing, ethical/Islamic fund, exchange-traded funds, payment of dividends among others.

Regarding complaints management, Oteh said that the Commission strengthened its working relationship with law enforcement agencies especially the Federal Ministry of Justice, Economic and Financial Crimes Commission (EFCC) and the Nigeria Police (NP).

“The commission had resident legal teams from both the Federal Ministry of Justice and the Nigerian Police which assisted in investigation and enforcement activities.  In the course of the year, we successfully resolved 709 out of the 1,393 complaints. Pursuant to the mandate to ensure compliance with the Anti-Money Laundering Prohibition Act (2011) and relevant Rules and Regulations, the Commission conducted ninety (90) inspections on capital market operators. We also reviewed a total of 1,594 returns from 337  market operators in 2011,” she said.

The SEC boss added that   in pursuing market integrity with the same vigour as the commission, the Nigerian Stock Exchange (NSE),  suspended 60  stockbroking firms for failing to comply with the directives of the commission to maintain a N70 million minimum capital base.

“We also facilitated the refund of about N200million by market operators in cases of breach of contractual agreements and non-refund of money to investors during the year. We penalised 14 fund managers for non-rendition of returns while one case involving mismanagement of funds was earmarked for enforcement action,” she said.

Speaking on the IFRS, Oteh noted that given that 2012 is the migration year stipulated by government for IFRS in Nigeria, the SEC in 2011 continued to invest enormous resources to ensure seamless transition by public companies.

“The commission in liaison with other stakeholders such as the Financial Reporting Council of Nigeria has put in place necessary measures to build required capacity in this regard. The Nigerian Capital Market Institute (NCMI) was approved for the proposed IFRS Academy.

“In a similar development, the SEC is working with the World Bank to organise IFRS Clinics for the purpose of providing technical support to public companies. A series of workshops and seminars were held to acquaint Chief Executive Officers, Finance Directors and Compliance Officers of targeted companies with the new regime in financial reporting,” she said.

Another area where SEC made a bold step in 2011 was the planned demutualisation of the NSE.
Oteh said that to improve the operations and global competitiveness of the NSE, the commission set up an industry-wide committee to examine issues around demutualisation of the NSE and make appropriate recommendations to the Commission.  The Committee last week submitted its report to the Commission.

Plans for 2012

Going forward, the SEC DG disclosed that viable strategies were being put in place to move the Nigerian capital market in the direction of sustained recovery and growth.

According to her, top on the agenda is the restructuring of the Abuja Securities and Commodities Exchange (ASCE).

“Given its importance to the growth of the national economy, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala,  is leading the collaboration of the Ministry of Agriculture, the Ministry of Trade and Investment and the SEC to reform the ASCE. 

This action is further underscored by the fact that ASCE was originally listed for full privatisation under the Public Enterprises Privatisation and Commercialisation Act of 1999. At the insistence of the SEC the ASCE was mandated to comply with minimum financial regulations with regards to the submission of audited annual financial statements. The ASCE for the first time in history in 2010 presented its financial results for the period 2004 – 2009,”she explained. 

Oteh added that  the capital market was being positioned  in 2012 to play a leading role in the  provision of affordable housing, which is one  that topped  the agenda of the Federal Government and those of many states.

“There is an estimated deficit of up to 18 million housing units in Nigeria and government housing schemes cannot do much to reduce the size of the deficit.
“Our housing sector roadmap at the SEC emphasises that government should focus on creating the enabling policies for private sector investment in the housing sector. 

The capital market can channel investible funds in a manner that meets government’s goal of providing affordable housing for the majority of Nigerians, while also providing expected returns to investors. This alone can dramatically reduce the jobless rate and grow the economy.  We project that our housing roadmap will increase home ownership from about 10 per cent now to nearly 50 per cent in the medium term,” she said.

According to her, SEC plans to deploy such instruments as securitisation to tackle the challenges of asset liability mismatch that make commercial bank financing of mortgages unattractive in Nigeria and elsewhere.

“In addition, we are pushing for larger reforms in land registration, land title, the tax regime and registration of collateral, which have constituted obstacles to the development of a viable housing market here,” she said.

One of the major challenges in the market is  overhang of margin and underwriting loans from the boom years, which  continues to impede the ability of many stockbrokers to provide liquidity to the market. But Oteh said that  they had  made representations on their(brokers) behalf through the Ministry of Finance.

“This year, we will continue to explore ways of alleviating the impact either by way of forbearance, debt forgiveness, etc. to revitalise the firms, improve liquidity and restore investor confidence in the equities market,” she said.

The SEC boss also said that going forward, the  commission would this year, be  undertaking a number of initiatives to encourage and boost participation by Nigerian retail investors in the market.
“One way of achieving this is by finding more innovative ways of building a culture of savings and investment. Also we are set to encourage the participation of Nigerians through institutional vehicles like mutual funds and collective investment schemes,” she said.

Also, in 2012,  the regulator is aspiring to  attract to the market companies operating in sectors that have little presence in our capital market.

“Among these are oil and gas, telecommunications and agriculture companies as well as small and medium scale enterprises (SMEs).  We have held preliminary discussions with targeted multinationals, particularly in the telecom and upstream oil and gas sectors. Oil as you know is the mainstay of our economy, contributing over 90 per cent of our foreign exchange earnings.

Telecoms similarly, is a significant segment of our economy with an estimated 80 million subscriber base, representing roughly half of the Nigerian population. We are working to incentivize these companies to seek listing, relying largely on the experience of other jurisdictions. Following the example of China and other BRIC countries, in 2012, we aim to attract SMEs (only 12 of which are currently listed) to list as this will create more jobs and encourage entrepreneurship,” Oteh said.

In order to achieve some of  these targets, the SEC disclosed that  in 2012,  the commission would  not relent in  its training and retraining of the members of staff.

“In this regard, we will continue to leverage our strategic relationships within International Organisation of Securities Commissions (IOSCO), US SEC, Oxford University, Guarantco and others on relevant training modules to develop requisite skills in the critical mandate areas and grow the capability of operators to enhance market efficiency and professionalism,” she said.
Oteh added that this year, the business model and operational framework of the Nigerian Capital Market Institute (NCMI)  would be reviewed to be able to effectively deliver on its mandate of providing training and other capacity building services to Nigeria and by extension the West African sub – region.

Source: Thisday