PERSPECTIVE
Paul K. Adegboyega believes that the robust disciplinary measures and investor-friendly initiatives being implemented by the Securities and Exchange Commission are strong incentives to woo investors back to the market
The strict regulatory approach and reforms introduced by the Mounir Gwarzo-led management of the Nigeria Securities and Exchange Commission (SEC) are helping to instill a new culture of discipline in the capital market. Despite the general negative economic outlook owing to the fall in oil prices, foreign exchange challenges and the recession, SEC’s strong regulatory oversight, zero tolerance for market infractions are playing a major role in keeping things from going south, while the government implements measures to pull the economy out of recession.
The bold actions taken so far by SEC are designed to send specific messages to specific categories of market players. To dubious stock brokers and other participants, the message is that it is no longer business as usual. To investors – local and foreign – the message is that there is a new sheriff in town and their interest and investments will be fully protected. From all indications, the message is sinking in. SEC’s interventions fall into two broad categories. One, those meant to instill discipline and ensure that operators play according to the rules of the market. Two, those designed to address institutional gaps and systemic issues that are of concern to existing investors and discourage potential investors from participating in the capital market.
With regard to stopping sharp practices in the capital market by dubious players, SEC has within the past 18 months displayed an uncommon willingness to wield the big stick against erring operators. The suspension and subsequent ban of Albert Okumagba, the owner of BGL Group is perhaps the strongest statement so far. The high profile, influential celebrity broker, once considered untouchable was expelled along with his company BGL from the capital market after investigations established complicity in an N28.9bn fraud case of mishandling investor funds.
Also, SEC came down hard on another stock broking firm, WT Securities Limited for mismanaging investors’ stock and selling the shares of Nigerian Breweries Plc and and Ngozi Onyekwere Nwachukwu without their consent. As punishment, the Directors of the company, Mr. Taofik Lawal and Mrs. Iyabode Lawal were banned for life and blacklisted from operating or participating in the stock market.
Heritage Capital Markets Limited, a stockbroker and dealer also got the suspension hammer for alleged fraudulent sale of investor’s shares. SEC also suspended the directors and sponsored individuals of the company, including two former presidents of Institute of Chartered Accountants of Nigeria (ICAN), Mr. Chidi Ajaegbu and Mrs. Ibironke Osiyemi.
Analysts estimate that about 10 stockbrokers have been suspended from the capital market since SEC turned the heat on. To say the obvious, the gale of suspensions and bans are positive signals that impunity will no longer be allowed to sabotage the realization of a strong capital market. The actions also provide much needed relief for traumatized investors who suffered losses due to lax regulations and dishonest operators. They also constitute strong signals to unscrupulous operators that things have changed and that they must conduct their business within the scope of the law or face the law.
However, because the law that set up SEC only empowers it to handle civil matters, the commission has gone into active collaboration with the Economic and Financial Crimes Commission (EFCC) to ensure full criminal prosecution of offenders. According to the Director General, Mounir Gwarzo, the collaboration is “a major game changer” in SCC’s enforcement drive.
As he put it, “this will send a very strong signal to any capital market operator that will commit an offence in the capital market that has a criminal element. The law limits SEC to only civil cases whereas about 99 percent of cases in the capital market have some criminal elements. The best we normally do after our investigation is to ban or suspend the operator as an individual, or suspend or revoke the license of the operator as a company. This collaboration will help to fix this gap”.
Under the partnership, SEC aims to work closely with the EFCC to ensure that criminal cases perpetrated by dubious market operators are judiciously and thoroughly prosecuted. The arrangement involves the set-up of desks at EFCC and SEC offices that are dedicated to handling capital market issues and complaints by investors in a timely and responsive manner.
Considering the culture of impunity, which held sway for a long time and the urgent need to discourage it, this partnership with EFCC is a good step in the right direction. It will no doubt help to complement the administrative actions of SEC against errant capital market operators by ensuring that they face the deserved sanctions for their crimes.
These punitive measures are very important given the well-established impunity that led to the crash of the capital market in 2008. Re-building lost confidence is therefore critical to the growth of the capital market. Market players and potential investors need to know that people who take liberties with the rules and cause so much loss to innocent investors will be punished when they go against the law. They need to know that there is a strong, reliable system in place that will not hesitate to apply the full force of the law against anyone, no matter how highly placed or connected, who goes against the rules.
To complement the disciplinary actions, SEC has also moved to address institutional gaps and systemic issues that are of concern to investors. These initiatives are part of a series of strategic actions outlined for implementation in the ten year Capital Market Master Plan designed to re-position the capital market. The Master plan is the blueprint for the far-reaching reforms being implemented by the Gwarzo-led management.
So far SEC has implemented a select suite of these actions to address specific pressing systemic issues that pose significant challenges to existing and potential investors. Some of these measures include the e-dividend platform, direct cash settlement and recapitalisation of capital market operators. Others are dematerialisation, corporate governance scorecard and operationalising our National Investor Protection Fund.
The e-dividend platform for instance is helping to fix the problem of unclaimed dividends which has persisted for twenty years. The platform offers a convenient and secure online means of paying dividends directly to the shareholder’s account instead of printing and mailing dividend warrants.
With de-materialisation, physical share certificates obtained through public offers are converted after verification by the listed companies Registrar’s into an electronic record kept by the Central Securities Clearing System Limited (CSCS). This is boosting convenience as well as ease of transactions for investors in the process making the capital market more investor friendly.
The common practice of stock brokers short-changing retail investors by selling the investors’ shares and keeping the proceeds for long periods is also being checked by SEC’s introduction of the direct cash settlement system. With this measure, the proceeds from trades executed by brokers on the Exchange are paid directly into investors’ bank account.
Another important measure, the N5bn National Investor Protection Fund is designed to compensate investors who lose money as a result of the revocation or cancellation by SEC of the registration of a dealing member firm with whom they were involved. The Fund will also provide compensation to investors affected by the insolvency, bankruptcy or negligence of a dealing member firm of the Exchange. It will also handle issues of defalcation (misappropriation of funds) “committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received or deemed received by the dealing member firm in the course of its business as a dealing member firm”.
Overall, focused regulation and investor-friendly initiatives by SEC are strengthening the capital market and providing a strong platform for more robust and sustainable investor participation in spite of the challenges of a recession hit economy. The positive impacts of these measures are likely to increase as the economy moves gradually into a post-recession phase by end-2107 as projected. Worldwide, the capital market is a reflection of the health of a country’s economy and a critical source of finance for national and economic development. While there is still a lot more work to be done, what is happening there gives hope that recovery is on the way.
- Adegboyega is a public policy analyst
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