Oscar Onyema, CEO

The Nigerian Stock Exchange

CAPITAL MARKET SOLICITORS ASSOCIATION

2014 Annual Business Luncheon

September 17, 2014

I am very pleased and honoured to have been invited by the Capital Market Solicitors Association (CMSA) to deliver the keynote speech at the 2014 annual business luncheon. I would like to thank the board of trustees, executive committee and members of the CMSA for affording me the opportunity to address this constituency with whom the Nigerian Stock Exchange (NSE) shares a common vision for the development of a formidable legal framework within which the capital market can operate, and achieve its objectives.

I commend the organisers on this year’s theme which demonstrates an appreciation for the great prospects that exist for Nigeria in the global landscape, and the fundamental role a robust capital market has to play in realising these prospects. With immense support from capital market participants and various agencies in Nigeria, the NSE has made great strides in its transformation journey which has brought about – major reviews of our governance, market structure and operations, a stronger regulatory environment, and the implementation of innovations required for delivering a robust and efficient capital market.

Corporate Governance

When we started the journey to transform the Exchange in 2011, we started with Corporate Governance. We embedded appropriate governance in all of our dealings from the National Council, to its committees, all the way down to the day-to-day running of the Exchange. We developed, documented, optimized and automated multiple policies and procedures to achieve operational efficiency. Today we hold ourselves to the same standards we ask of our listed companies.

Market Structure and Operations

To boost liquidity and depth in the market, the NSE began implementing changes to its market structure in 2012 by introducing market making in equities and fixed income, expanding the limit up/limit down threshold from 5% to 10% for stocks, and launching securities lending and short selling. To ensure better market quality, the NSE introduced opening and closing rotations with Pre-Open and Pre-Close Adjust sessions, providing a window for market makers to supplement liquidity during the opening and closing auctions. Currently, the market has also been enabled to support direct market access (DMA), which will open the Nigerian capital market to global investors as they will have more control over the final execution of their orders as well as the ability to exploit liquidity and price opportunities more quickly.

Stronger Regulatory Environment

Operating a fair and orderly market is at the heart of our regulation, and developing a sustainable investor protection framework has been a key pillar of our transformation journey. A strong regulatory environment is essential to protecting investors against infractions and enhancing investor confidence in the market. To this end, the Exchange has ensured that it has clear and enforceable rules, with a zero tolerance policy on all infractions. We have worked tirelessly to revise key rules for dealing members and issuers, and developed several new rules to create the much needed order, equitable treatment, efficiency and protection for all participants in our market. We congratulate the Securities and Exchange Commission for approving these rules.

To ensure that this is successfully achieved, we have introduced a number of compliance measures which include:

• (i) X-Issuer – a secure platform that allows issuers to electronically submit financial and other relevant information to the market and the Exchange in a seamless fashion. It was introduced to facilitate information disclosure, transparency and accountability in the market place.
• (ii) X-Whistle – this became operational this year, and empowers participants to confidentially report any fraud, or possible violations of the rules and regulations of the Exchange and the Securities and Exchange Commission (SEC).
• (iii) X-Compliance Report – is a transparency initiative designed to help maintain market integrity, by providing compliance related updates on all listed companies.
• (iv) BrokerTraX – is a tool we introduced in 2012 to provide transparency into broker and brokerage firm compliance with the rules of the market.
• (v) Market quality report (X-Qual) – also introduced in 2012, this is a tool which offers brokers and analytical investors insight into how to derive best execution of orders in the market, and the quality of execution that can be expected.
• Our compliance measures are supported by tight enforcement procedures which include inspections, market surveillance and a vigorous penalty system. In any event, as a safeguard for the investor, the NSE has reinvigorated its Investor Protection Fund (IPF) which will provide investors a statutorily backed solution for reducing losses they might suffer as a result of the bankruptcy, insolvency, negligence or wrong-doing of a dealing member. Beyond that, both the Exchange and the wider financial community recognise that sound financial education is a prerequisite for harnessing investors’ potential to save, invest and build wealth, while managing risk. Thus, the Exchange does not only run a financial literacy program to educate investors, it is a member of the Financial Literacy Steering Committee (FLSC), which is chaired by the CBN, and whose mandate is to develop and implement the financial literacy framework for Nigeria.

In an effort to raise the overall level of competitiveness, the Exchange has recently developed a Corporate Governance Rating System (CGRS) for listed companies in partnership with the Convention on Business Integrity (CBi). This rating system raises the bar for listed companies, in terms of acknowledging those that fare well on compliance with the rules of the Exchange, fiduciary awareness, and their ability to manage business risk. By remaining at the forefront of promoting good business practices, we can further increase our contributions toward the sustainable development of our listed companies, and invariably, the economy.

Corporate Social Responsibility

We value the crucial role we play in supporting economic growth by ensuring the nation has an efficient and sustainable capital market; however this responsibility extends to how we operate our business in the micro environment. Consequently, we are devoted to operating a sustainable organization through responsible financial and investment services, sustainable business practices, engaged and talented people, community contributions and environmental stewardship, in line with global best practice.

Through our community investment approach, we are changing lives and impacting communities. With a current commitment to appropriate approximately 2% of annual profits in support of benevolent investments, the NSE actively seeks to improve the affairs of the communities in which we operate. In the market place, the NSE achieves its commitment by raising environmental, social and governance (ESG) awareness, and standards among listed companies as well as offering information, products and services for sustainable investment. Internally, we foster a qualitative work environment by implementing employment practices that facilitate diversity and equality, opportunities for training and development, healthy and safe work atmosphere, fair remuneration and meaningful communication within the organization. Our environmental efforts are in partnership with the Lagos State Waste Management Authority (LAWMA) to ensure safe and reliable waste disposal.

New Innovations

In support of our stronger regulatory environment and business practices, the Exchange recently launched a new age trading platform – X-Gen that is based on the leading NASDAQ OMX X-Stream matching engine. The X-Gen is a dynamic platform that has numerous opportunities and capabilities. It is able to process some 100m+ orders per day with 5,000 trades per second, and has a highly flexible and configurable market structure that can be enhanced to support the auctioning process and trading of several asset classes including a wide range of Fixed Income securities (like FGN Bonds), Equities, Exchange Traded Funds, Commodities and Derivatives. The platform has the capacity to allow investors have real time access to the market as well as their portfolios, via the web and mobile phones (includes smartphones and tablets). This gives them the ability to execute market orders in near real time conditions anywhere in the world.

All of the initiatives we have delivered in the course of our transformation are aimed at developing a more transparent, liquid and accessible market with a modern market structure to support the delivery of a wider range of investment products. By engaging all our stakeholders; our investors, listed companies, market operators, the regulator, and prospective issuers who had lost faith in the capital market are now returning to the market, and we are beginning to witness a sense of optimism from all market stakeholders. To illustrate this point, the Average Daily Value traded (ADVT) was up approximately 4.74% in 2012 at $17.5M, and 57.36% in 2013 at $26M. Year to date 2014, we are tracking at $27.63M ADVT. This highlights the fact that people are starting to see the value of investing in Nigeria and confirms that we are moving in the right direction. Accordingly, the transformation of the NSE which started in 2011 has been a remarkable journey, and it is with great pleasure that I state that the Exchange is now ready to shift gear from transformation, towards growth.

The Next Phase of Growth

The NSE has started work on its new medium-term strategic direction, covering the 2014-2019 corporate strategic plan with clearly outlined objectives leading up to 2019. Our corporate strategy strives to solidify our leadership position as Africa’s foremost securities exchange, and aims to increase our footprint in the region (and internationally), by creating a market platform that is compelling for domestic and global issuers and investors.

To attract more companies to list, and to attract and retain a larger pool of investors, at the minimum, we must ensure that we maintain stable and consistent policy regimes, and uphold fair and orderly markets based on just and equitable principles that will generate and preserve issuer and investor confidence in our markets. We realise that to attract more companies to list, we must partner with policy makers to take full advantage of developmental initiatives which require massive mobilisation of capital; for instance, sector-wide policies calling for recapitalisation of and or consolidation by operators, and other privatisation/commercialisation programmes in sectors such as telecommunications, extractive industries, and so on. Our business development team continues to actively take steps to encourage Nigerian companies in general to list in Nigeria.

Initiatives in this area focus on direct communication with listed and unlisted firms, as well as seminars/dinners targeted at specific industry groups.

In terms of capital market development, the NSE is committed to the integration of African exchanges and thus, plays an active role in the West African Capital Markets Integration (WACMI) program. The value proposition for integration are: (i) Large consumer base of over 290 million people with significant domestic savings and investing potential; (ii) facilitation of momentous growth in the markets, which will empower the region to remain relevant in attracting investment flows, by creating a much larger market for local and international businesses; and (iii) opportunity for a deeper pool to raise capital for local companies. The integration will also allow exchanges the latitude to use a single platform across West Africa, allowing the Exchange to offer co-hosting services to other African exchanges utilizing the power and efficiency of the X-Gen platform.

To achieve the growth we have envisioned, we need strong intermediaries, especially the broker-dealers in our market. It is against this backdrop that we developed minimum operating standards for our Dealing member community. These standards coupled with the SEC’s minimum capital requirements will force bigger and better run intermediaries to emerge in the Nigerian capital market. To achieve this, we have encouraged ASHON to act as an information clearing house and to form five working groups to drive implementation of all aspects of the NSE minimum operating standards, and have volunteered our staff to join each working group as resource persons. We have also held seminars on Mergers and Acquisition (M&A) for the community.

Conclusion

The world has woken up to the reality that its fastest-growing markets are emerging from the African continent, with Nigeria as one of the top performers. Large population and GDP, as well as a disproportionately young population (approximately 70% of the Nigerian population is under the age of 30), especially at a time when a number of highly developed countries are contending with the challenges of shrinking populations, provides a major opportunity that translates into a powerful market for consumption. This is a fact that has not gone unnoticed by the increasing number of international businesses and investors looking to exploit this potential. Both the foreign and domestic investment communities are optimistic that the recent economic expansion experienced in the nation should continue for the foreseeable future and that the financial community will continue to support this expansion because it is in its best interest.

The Nigerian capital market, and indeed our business, will always be impacted by shifting investor demands. Achieving competitiveness and enhancing the NSE’s value proposition are important to our success in the short term and beyond, but safe-guarding our market and maintaining a high level of attractiveness with a strong regulatory framework, are critical to our objectives. We invite the CMSA to join us in playing a pivotal role as the industry evolves its regulatory framework to the highest standards on the globe.

Thank You.