Strong indications have emerged that the Securities and Exchange Commission (SEC) is aiming to prune the number of stockbroking firms to 50, from the current a 250 active firms.
As at December 2013, SEC registered brokers were about 281, with 250 of them being active. According to SEC, 20 per cent of the 250 controls 80 per cent of the total transactions in the market by volume and value.
Market sources told THISDAY on Monday that the thinking of the capital market regulator is to reduce the number of stockbroking firms to the number controlling 80 per cent of the market in terms of volume and value.
One of the ways SEC wants to use to reduce the number of broking firms, THISDAY gathered, is the new capital structure, which was announced last December.
According to the new minimum capital structure, a broker/dealer is required to have N300 million, compared with N70 million in the past.
SEC recently gave indication on its preference for fewer stockbroking houses when it said the relationship between the 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.
The regulator said many more operators are chasing after fewer businesses in the Nigerian market. Besides, SEC alleges that because many operators are chasing after fewer businesses, the development has led to “acts of market indiscipline, rule infraction and sundry malfeasance as poorly capitalised capital market operators (CMOs) adopt untoward practices to stay afloat.”
The commission said these CMOs in this category control about 20 per cent market share and or total transactions, constitute the source of over 79 per cent of complaints about unethical conduct and rule infraction.
“The pervasive presence of undercapitalised and hollow shell CMOs therefore undermines market integrity, erodes investor confidence and hikes regulatory cost which is incurred through investor complaints management and other remedial undertaking,” the commission said.
Speaking on this development, a senior stockbroker, who speak on the condition of anonymity, said the intention of the SEC to reduce the number of brokers to 50 if true, will have negative impact of the market.
“Ïn the first place, trying to achieve this through an increase of 300 per cent in share capital of broking firms, is not the right strategy. Secondly, forcing broker out of the market or reducing the number from over 200 to 50 will mean preventing many potential investors from the market the few ones to remain will have monopolistic tendencies. And this is contrary to financial inclusion policy of the federal government,” the broker said.
The broker added that SEC should rather look at the report on the harmonised Complaint Management Framework (CMF) submitted since 2012 and see how it can address the various complaints by investors instead blaming operators.
As part of market reform efforts of the SEC, a committee was set up to develop a uniformed CMF for the market. The committee, headed by the Chairman of Association of Stockbroking Houses of Nigeria (ASHON), Mr. Emeka Madubuike was said to have submitted that report since 2012. But nothing has been heard about the report while investors continue to face frustration due to poor handling of their complaints.
Source: Thisday (by Goddy Egene)
