Investors are interested in the security of their investments. They are attracted to markets where their interests are best protected and transaction processes seamless.
Aware of these facts, the Securities and Exchange Commission (SEC) is taking steps to guarantee investors’ confidence and build systems that will make transactions hassle free. Its institution of N5 billion Investors Protection Fund (IPF) to pay investors N200,000 for losses in line with the Capital Market Master Plan, is a measure to restore investors’ confidence in the capital market.
Also, the SEC, ain collaboration with the Central Bank of Nigeria (CBN), and in line with its statutory mandate of promoting and facilitating the development of efficient and effective systems for settlement of transactions, issued guidelines for the settlement of all types of securities.
Besides, in line with Part XIV of the Investment and Securities Act (ISA) 2007, the SEC established the IPF and appointed a board of trustees to administer it. The purpose of the fund is to compensate investors with genuine loss claims against dealing member firms, covered are losses resulting from these key areas – the insolvency, bankruptcy or negligence of a dealing member firm of the exchange; or offence 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.
The SEC’s Director-General, Mounir Gwarzo, said besides the IPF, the introduction of electronic dividend and direct cash settlement of investors were geared towards the successful implementation of the master plan.
“We have also done other things like the recapitalisation. We have instituted a corporate governance scorecard and introduced the IPF. The fund ensures that if there were some problems that led to loss of money, the investor would be compensated up to a maximum of N200,000. We have been talking about amending some of our laws in the capital market. We have also set up an advocacy group that will look at the market, and see how capital market can be on the front burner of the Nigerian economy,” he said.
Speaking further, he said in terms of the implementation of the master plan, SEC is doing quite well and has continued to raise the standards of the market.
According to Gwarzo, a board had been set up to help run the affairs of the fund and its members would ensure that complaints from investors were genuine.
“If you lodge any complaint, there are a lot of rigorous processes of verification to ascertain that your complaint is genuine and that you are actually the true owner of that investment. The beneficiaries would N200,000. The whole essence of giving the N200,000 is to temporally ease the financial pressure the person is going through. Early last year, we paid about 320 beneficiaries,” he said.
Analysts believe that the current low patronage of the Nigerian stock market is partly as a result of the losses they suffered during the 2008 and 2009 market downturn. Many of the investors believed the protection they got from regulators in the past was not enough and are therefore, reluctant to return to the market. However, the current market regulators have intensified efforts to protect investors in order to increase their participation in the market.
Measures to boost investors’ confidence
For instance, the Nigerian Stock Exchange (NSE) signed a Memorandum of Understanding (MoU) in 2013 with the Economic and Financial Crimes Commission (EFCC). This MoU was aimed at tackling market infractions and curbing market abuses because of its zero-tolerance stance on infractions by dealing member firms and listed companies.
The partnership has successfully opened direct lines of communication and information sharing with the EFCC for reporting and investigation of incidents leading to a more proactive law enforcement and swift recovery of stolen securities.
The initiative has severally led to the arrest of individuals suspected of forgery, impersonation and fraudulent sale of shares.
However, the extent to which an investor can be protected is defined by the commercial laws and the enforcement of such laws, such that investors are protected from expropriation by company insiders.
In the capital market, investor protection is usually measured by indicators that quantify explicit protections awarded to shareholders and creditors by corporate, bankruptcy, and re-organisation laws, as well as the quality of law enforcement. Examples of such explicit protections are those that impact shareholders’ ability to vote down directors, including whether to allow shareholders to vote by proxy.
Analysts believe that the differences in investor protection across countries are substantial and are responsible for differences in the development of financial markets and ultimately, differences in economic development. In Nigeria, the Investment and Securities Act (ISA) 2007 provides the ways and manners investors are protected.
Other initiative to protect investors
Apart from signing the MoU with EFCC, the NSE has also identified investors’ education as another veritable tool towards protecting investors in the capital market. The NSE kicked off its financial literacy programme in protecting investors in February 2012. This programme was designed to enhance investors’ understanding of the basics of investing around portfolio construction, asset allocation and risk diversification. In 2015, The NSE conducted over 172 programmes across Nigeria, including school outreach sessions, seminars and workshops to educate investors, market participants and the general public about responsible investing and sustainable capital formation, reaching about 15,000 people.
Corporate governance rating system
To promote sound practices of corporate governance, the NSE introduced the Corporate Governance Rating System (CGRS), an initiative designed to rate listed companies on the exchange based on their corporate governance and anti-corruption culture, thereby improving the overall perception of and trust in Nigeria’s capital markets and business practices.
NSE Chief Executive Officer, Oscar Onyema, said the introduction of the CGRS would improve the overall perception of the capital markets and business practices of listed companies. He said: “It is expected that companies will enjoy tangible business advantages from risk-oriented and/or ethically sensitive business partners and investors. In addition, competitors would be challenged to establish the same level of good governance by setting standards of excellence. Companies would not only set themselves apart from their peers, but also contribute to improving the climate for doing business in Nigeria.”
Similarly, as part of efforts to protect investors by enhancing access to their cash as well as eliminating fraudulent activities in the Nigerian capital market, the NSE, in collaboration with the SEC and Central Securities Clearing System (CSCS), commenced the Direct Cash Settlement (DCS) . The initiative allows for the direct payment of proceeds of sale of securities into an investor’s nominated bank account.
The initiative is a great departure from former practice where proceeds from sale of securities are paid directly into the stockbroker’s account. Stockbrokers then deduct transaction fees and remit the balance to the client’s account. Historically, issues have arisen when the proceeds of sales were not remitted into the clients’ accounts, which necessitating the need for the initiative.
In terms of enhancing surveillance, the NSE equally acquired NASDAQ’s SMARTS Market Surveillance platform to power its compliance programme. The technology will provide the NSE with the surveillance expertise needed to grow and expand the market and equip the exchange with the surveillance tools necessary to monitor market manipulation, including spoofing and layering.
The NSE launched its whistleblowing portal (X-Whistle) in 2014, to enable operators, investors and other stakeholders disclose information on market infractions and abuse. The X-Alert, which allows the investing public to know when a transaction has been made on their account, has also been introduced. Explaining the importance of the initiative, the NSE said: “Each time investors buy or sell a security, an alert is sent via a text message to the recipient’s mobile phone or via an e-mail to the recipient’s mailbox.
“The initiative brought real time notification plus transparency to the market at market rates, while safeguarding against unauthorised sale or purchase of securities.”
To increase the level of market compliance, the NSE also launched the BrokerTraX, a tool that provides transparency of broker and brokerage firm compliance with the rules of the market. Not only this, there was an introduction of X-Compliance Report, a transparency initiative designed to help maintain market integrity by providing compliance related updates on all listed companies.
Recently, the exchange has again commenced the use of enhanced Compliance Status Indicator (CSI) codes on the ticker tape for listed companies as part of efforts to further improve market transparency and integrity, provide timely information for investment decision as well as enhance the protection of investors in the capital market.
Under this initiative, the exchange tags all listed companies with a three character code that indicates the compliance status of the listed company at any particular point in time. This compliance code will enable investors to make informed decisions while ensuring a transparent market guided by timely information.
Debt Management Office steps in
In a bid to ensure that retail investors benefit from the Federal Government Bonds (FGN Bonds), the NSE has collaborated with the Debt Management Office (DMO).
According to DMO Director-General, Dr. Abraham Nwankwo, there had been efforts to ensure that the FGN bonds were democratised for retail investors to participate since 2012. He said the organisation appointed Stanbic IBTC Stockbrokers to assist in the democratisation of the initiative to ensure that its services were not only for the upper class.
He said: “We wanted Stanbic IBTC to assist us in making sure that every retail investor with little money can also participate in the investment thereon. The NSE is not an elitist platform for only those who are millionaires and billionaires, but also for those with little money like N10, 000 to invest in the government bond and have it listed on the NSE.”
Nwankwo said the move had yielded some positive results, noting that the job was to encourage retail investors to buy FGN bonds and have their bonds traded on the NSE just as big investors.
Islamic bonds investors also protected
The Central Bank of Nigeria (CBN), supported by SEC, is also keen on protecting investors’ confidence. The apex bank has set commercial banks’ investment in Islamic bonds issued by state governments to 10 per cent of the total amount on offer.
CBN’s Director, Financial Markets Department, Angela Sere-Ejembi, said the apex bank also fixed a maximum tenor of 10 years for the bonds.
“In view of the need to foster financial system and economic growth and development, as well as complement the efforts of government at various levels, the CBN has approved “Guidelines for Granting Liquid Asset Status to Sukuk Instruments issued by state governments”, to enhance the diversification of sources of funding for development at the sub-national levels,” she said.
She said financial deepening is gradually gaining ground in the Nigerian financial landscape with the introduction of new financial products, including non-interest financial instruments, to cater for the diverse financial needs of the populace and government at various levels.
The adoption of Sukuk issuance by state governments, as an alternative means of financing public expenditure, will contribute to the deepening of the financial system. In the same light, it is expected that other levels of government as well as interested supra-national financial organisations may get involved in Sukuk structuring at some time in the future.
She said to ensure the sustainability of this development, the CBN has considered the need to enhance the quality of Sukuk instruments, by issuing these guidelines to provide for eligibility for the grant of liquidity status to Sukuk issued by state governments at its discount window as well as for the purpose of liquidity ratio computation. This will further deepen the market and promote investment and secondary market activities.
The Sukuk issuance, she said, shall be backed by a law enacted by the relevant House of Assembly, specifying that a sinking fund to be fully funded from the consolidated revenue fund account of the state be established.
SEC, CBN promote efficient settlement of transactions
The guidelines for the SEC/CBN settlement plan also set out the procedures for the settlement of securities, including the rights and obligations of the parties involved in every transaction. It also covers the settlement procedures and settlement cycle for the trades executed in the Nigerian Stock Exchange traded securities, FMDQ over the Counter (OTC) Securities, NASD Over the Counter (OTC) Securities, Nigerian Commodity Exchange (NCX) traded securities and Afex Commodities Exchange.
Parties to Securities Settlement include, but not limited to Capital Market Registrars, CBN, NSE, Central Securities Clearing System (CSCS) Plc (Central Securities Depository -Clearing & Settlement Agent), Deposit Money Banks (DMBs), Custodians, Dealing Members Firms Page, Discount Houses and Nigerian Commodity Exchange (NCX).
According to a release on the CBN’s website, the general rule is that any securities transaction must trade or be reported through a licensed Exchange in line with the standard settlement guidelines.
“After each day’s transaction (Day T), the clearing/settlement agent (CSCS) shall generate the financial obligations of each dealing positions of the dealing member firms based on their respective settlement banks to arrive at net position per settlement banks,” the statement said.
For Federal Government securities, the statement added that after each day’s transaction (Day T), the clearing/settlement agent shall generate the financial obligations of each dealing member firms. It added that the clearing/settlement agent shall generate the financial positions of the dealing member firms based on their respective settlement banks to arrive at net position per settlement banks.
On Federal Government securities (primary auction), the guideline directed that among other things, after the release of auction result, the government securities issuing agent shall notify each successful bidder (primary dealer) their financial obligations. The successful bidder shall fund its account with the government securities issuing agent for settlement on or before Day T+2.”
The aim of this guideline is to promote competitive, efficient, safe and sound post trading arrangements in Nigeria. This should ultimately lead to greater confidence in securities markets and better investor protection and should in turn limit systemic risk. In addition, the guidelines seek to improve the efficiency of the market infrastructure, which should in turn promote and sustain the integration and competitiveness of the Nigerian securities markets, according to the guideline.
Gwarzo is interested in unlocking the country’s economic potential and creating wealth for the people. It is more concerned about investors’ protection. While many agencies and investment companies began a campaign, urging investors to invest in digital currencies, such as Swisscoin, OneCoin, Bitcoin and such other virtual or digital currencies, SEC warned them about the risk of such investment.
In a statement, SEC said: “The attention of the SEC has been drawn to radio advertisements and other modes of solicitations of the public to invest in digital currencies. The public is hereby advised to exercise extreme caution with regards to digital as a vehicle of investments. This warning is in consonance with similar warnings issued by capital market regulators and central banks across the world over the past few years.”
The Commission alerted the public that none of the persons, companies or entities promoting the initiative has been recognised or authorised by it or by other regulatory agencies to receive deposits from the public or to provide any investment or other financial services in or from Nigeria. The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be risky in nature with a high risk of loss of money, while others may be outright fraudulent schemes.
Continuing, it said: “Given that these instruments and the persons, companies or entities that promote them have neither been authorised, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.
“The public and consumers of financial services are further advised that before making any investment or entering into any financial services transaction, they should ascertain that the entity with whom the investment or transaction is being made is authorised by the Commission or other financial services regulatory authority as applicable to provide such services.”
But the Managing Director, Nigeria Deposit Insurance Commission (NDIC), Umaru Ibrahim, said the corporation and the CBN had set up a committee to look into the trending “digital currency, ‘bitcoin’.
Ibrahim, who spoke at a media forum in Kaduna with “Economic Recession and the Nigerians Banking Sector: Opportunities, Challenges and the way Forward”, as theme, said the corporation had constituted a committee together with the CBN to have a deep study of the phenomenal bitcoin.
“We will look at it’s advantages and disadvantages, what it means for the payment system and what it means for safety and security of customers. We will also look at what it means for money laundering, anti corruption, crime and measurement of money/near money instrument for the economy. But we need a lot of education to do this,” he said.
Overtime, Gwarzo believes that the potentials of the local financial market are enormous and have to be unlocked early to create wealth for the nation, but it has to be done rightly and with the right information. The SEC boss is, therefore, implementing key policy initiatives meant to deepen the Nigeria financial market, secure investors’ confidence and drive investment with new technologies.
Like the CBN, SEC under Gwarzo is aware of the impact of bringing more people into the financial market net and creating seamless dealing platforms that raise confidence level in the market. These policies are not only sustaining investors’ interest, but deepening the financial market.
The e-dividend management system, which was launched last year by the SEC in collaboration with the CBN and the Nigeria Interbank Settlement System (NIBSS) to enable investors have direct access to their dividends, is already enjoying some level of compliance from the investing public.
The SEC boss said the Nigerian capital market has amazing potential to serve as a catalyst for financial inclusion. While most people identify capital markets as important sources of medium-to-long-term capital, a few realised their amazing potential to serve as catalysts for bringing so many people into the financial services sector in the interest of the economy.
Source: The Nation