By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-Nigeria’s Securities and Exchange Commission (SEC) Tuesday refuted the allegations made by the Association of Stock broking Houses of Nigeria (ASHON) and Chartered Institute of Stock brokers (CIS) that they were not consulted before the decision to review upwards the minimum capital requirement for capital market operators was made.
SEC in a statement by Obi Adindu, Communications Adviser to the Director General (DG) SEC and made available to InvestAdvocate said the new capital regime was the outcome of a process which commenced in 2010 with the setting up of a technical committee chaired by a former Executive Commissioner, Operations at the Commission which featured representatives of the capital market industry trade groups such as the ASHON and the CIS as active members.
According to the Commission, the new minimum capital regime recently announced came on the heels of a September 2013 SEC Board decision following the finalization of the work of that industry – wide committee.
‘’Further to the recent announcement of new minimum capital requirements for Capital Market Operators (CMOs), it has become pertinent to reiterate that the SEC Board decision was the outcome of extensive indeed exhaustive consultations with stakeholders within and beyond the Nigerian capital market,’’ the statement said.
SEC affirmed that an enhanced capital base for CMOs in the Nigerian capital market (NCM) is long overdue. ‘’It is an inevitable logical step in the industry reform effort being led by the SEC and which has the buy – in of all industry stakeholders. The reform has led to unprecedented market recovery with market capitalization and the All Share Index (ASI) attaining and exceeding the pre 2008 peak global financial meltdown figures, thereby positioning Nigeria within the top 10 bracket of the world’s best performing capital markets for the third year running,’’ the statement said.
The Commission further affirmed that the recovery process can only be sustained with the strengthening of market operators through enhanced capital, better technological infrastructure, qualitative human capital, improved operational set up which provides for seamless and efficient linkage between the front, middle and rear offices as well as a corporate governance structure which moderates the often pernicious link between ownership and control.
SEC said the new capital requirement is inspired by current international best practice which requires that operators hold capital which is commensurate with the size of risk which they bear in the market place. ‘’Indeed the new capital regime, when depreciation in the value of the naira is factored in, merely takes the Nigerian capital market back to the 2004 baseline capital situation. The significant erosion of capital which reduced many CMOs to hollow shell entities was a vital factor in the flight of investor confidence from the Nigerian market which in turn frustrated the market’s recovery for a long time,’’ SEC affirmed.
According to the Commission, there is the need to migrate to an enhanced capital regime. ‘’There are presently 281 registered market operators out of which 250 are active. 20% of this active group controls 80% of total transactions in the market by volume and value. The relationship between transaction volume and value on one hand, and number of operators on the other, makes the Nigerian market a most parlous picture relative to other peer and non peer markets as many more operators chase after fewer businesses (in the Nigerian market),’’the statement said.
SEC said the direct consequence of the above is multiplication of acts of market indiscipline, rule infraction and sundry malfeasance as puny, poorly capitalized CMOs adopt untoward practices to stay afloat. ‘’Some 80% of CMOs in this category control about 20% market share and or total transactions but constitute the source of over 79% of complaints about unethical conduct and rule infraction,’’ the statement said.
This is coming on the heels of the reaction both ASHON and the CIS on the newly introduced minimum capital requirement by operators in the Nigerian capital market.
Broker/Dealers are now expected to shore up their capital base to N300 million from N70 million.
Brokers from N40 million to N200 million, dealers from N30 million to N100 million, issuing houses from N150 million to N200 million and underwriters from N100 million to N200 million.
Others are registrars from N50 million to N150 million, trustees N40 million to N300 million, rating agencies from N20 million to N150 million, while that of corporate investment advisers still stands at N5.0 million.
