Nothing is more heart warming than a gradual return of confidence noticeable in performance indicators in an equities market with doubtful outlook six years after a crash wiped off N6 trillion of investors’ money.
At the close of trading on Tuesday, July 22, the All Share Index that measures equities’ performance stood at 42,784.30 basis points while market capitalisation settled at N14.127 trillion.
These figures are higher than they were in 2009, and even in 2011. But with the recapitalisation of dealing firms by the end of December this year, trouble seems to be in the offing once again. Brokers said it would leave the market worse off, recalling that it was recapitalisation that almost ruined it before the eventual crash in 2008.
But, in this interview with Assistant Business Editor, KELECHI MGBOJI, the doyen of the Nigerian Stock Exchange (NSE), Sam Ndata, argues that the problem with the Exchange is over-regulation. Ndata, Managing Director and Chief Executive Officer of Compass Securities, insists that the Securities and Exchange Commission (SEC) and the NSE are over-regulating the market.
Below are more excerpts of the interview with the stockbroker regarded as the most experienced on the NSE.
Sam Ndata
On the promise five years ago by SEC Director General, Arunma Oteh, to redirect capital from services to manufacturing
It has not been achieved. Those are politics when someone is coming into a terrain in which one does not know how things work.
You will first make promises. If all the chips are down and you’re already in the system and you cannot do what you have promised to do because of the indices, the will is not there to achieve results.
You must understand the terrain and have the will to effect whatever change you desire. When there is no infrastructure, where is the industry Oteh wants to redirect?
The system has to be stable and all the indices on the ground have to be favourable before you can think about redirecting capital towards the manufacturing sector away from the services sector.
Few companies have actually shown interest in raising capital over the years except for those applying through right issues.
Is it that they don’t have confidence any longer about raising capital?
The issue is confidence.
The companies that have been listed, how are they performing? All the insurance companies, how are they performing? Badly. Is it that there is nothing the regulator will do to ensure things happen? Does it end with seminars? Even the seminars and workshops, how many insurance companies attend?
Insurance companies are not doing what is required of them. How many Nigerians are insured? Premium returns to the insurer has always been the bottleneck of most insurance companies. If anybody wants to part with his money for insurance these days, he has to open his eyes very well.
The information technology sector, is it that there is nothing the regulator can do to ensure things happen? Does it end with seminars?
Now, the SEC wants to regulate the market. Hitherto, the capital market went bad when they wanted to increase the capital base for stockbroking firms. Firms started doing what they are not supposed to do to generate money.
The market is gradually regaining momentum and the SEC wants to go back to the same issue that brought down the market. Does it show the SEC understands very well the market it is regulating?
Impact of recapitalisation on the market
Recapitalisation has impacted negatively on the market because firms playing in the capital market should be interested in looking for local investors’ participation to boost the market as it used to be.
But now firms will start chasing money to recapitalise instead of looking for investors that will improve market activities.
Other policies affecting firms negatively
The capital market is over regulated. It is not like that in other jurisdictions. You can check the world over. The way the capital market is regulated in Nigeria is not done elsewhere.
If a regulator wants to regulate the market, it must understand it properly. You must be a professional to say you can regulate this market. How many times have we talked about recapitalisation? It ruined the market before now. The same issue has continued to pop up over and over again.
We don’t need so much money to operate in the market since we are only middlemen in stock trading. And we don’t handle investors’ cash any longer. The cash is with custodians.
Areas over regulated
As I said, if you know something very well, this is your area; you should know what is expected of you. You should know where to start or stop. What is stockbrokers’ percentage commission on transactions? What percentage commission do firms need to manage functionally?
If we don’t have the money to perform our functions as firms, do regulators expect us to steal? If you draw a national budget and some areas are not met, is that not a deficit? That the commission allows firms to function properly is not enough. What do we do?
Unfair disbursement of NSE charges
If the regulators tell you what they are taking and what the stock brokers that are laying the golden egg are taking, you will see that there is no fairness.
The Chartered Institute of Stockbrokers (CIS) that trains brokers is not getting anything from the charges. The SEC gets 1 per cent and the NSE gets its portion. The only party not getting anything is the CIS, is that fair?
Meeting up with stockbrokers’ recapitalisation deadline
We are talking with the SEC. We will meet it halfway. We will do something but not to the extent that the SEC has proposed. It is those of us in the market who know how best to recapitalise it and the capital base needed by firms to operate.
Stockbrokers can’t do anything if the SEC insists on recapitalisation
Stockbrokers are helpless. What do you expect stockbrokers to do? We can’t do anything.
President Goodluck Jonathan is talking about job creation and the SEC wants to send more people out of the capital market job. Is the SEC supporting Jonathan or supporting its own agenda?
Issues new CIS president should address
The issue of dealing member firms’ annual charges should be addressed by the new president of the CIS. Since the market has been down, firms are not finding it easy paying annual charges. Where do they get the money to pay their dues? This boils down to what I am talking about.
This is the only profession currently where professionals can’t get the money to settle annual dues. The SEC is demanding too much from stockbrokers.
If transactions occurred in 2009, and possibly you short-paid the SEC, it will keep the claim till 2014. They tell you it has accumulated to millions of naira in 2014 and you must pay.
Why did the SEC not say anything when the payment was made? Why did it not complain then and allowed it to accumulate to millions of naira by 2014?
We are in a profession where we are not getting the money we are supposed to get; and the fees we are supposed to pay we are not able to pay.
What stockbrokers get as commission
If the SEC, a regulator of dealing member firms, is getting as much as 1 per cent and the firms doing all the business are getting 1.75 per cent, what difference is it?
I do the bulk of the business, the SEC and the Exchange take their commission and firms that do the business take 1.75 per cent. I am not saying you can’t take anything from me but you should take something that is reasonable enough to help me lay more eggs.
Ten firms accounted for 63.8% of total transactions in the equities market by June 2014. Is it a sign of how many firms are needed?
We need as many dealing member firms as possible. Check all the foreign stock markets, how many of the dealing members are more capitalised than Nigerian stockbrokers?
If I have that money the SEC is talking about, why will I be looking for investors? I will rather trade on my own account.
I know the business am into and I know the benefit am going to derive if am trading for myself. With the N300 million capital base for broker/dealer, the SEC is shutting out local investors from the market.
With such volume of money, there is no need for firms to look for investors to buy shares, you trade with the money for yourself.
Your take on BDC capital base
The bureau de change (BDC) is long overdue to recapitalise. What the new Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, is doing about BDC capital base is good for our economy. He should streamline that sector and make sure there is stability.
With the kind of money BDC operators deal with, I think the CBN should know where and how the money is going. Their operation should be properly monitored and sanitised otherwise the economy may suffer for it.
CBN policies to impact positively on the capital market
Market operators welcome all the policies of Emefiele. If well-tailored, all the policies will positively impact the capital market. A low interest rate regime will favour the capital market as much as it does the manufacturing sector.
How interest rate reduction will impact the capital market and manufacturing
Emefiele is strategising on how to reduce interest rate so that investors can access funds and resuscitate the economy. He knows what he has come to do. Banking is his profession and he knows it so well.
A reduction in interest rate will boost market activities because those who cannot go to the money market will come to the capital market to invest or raise funds. That alone makes the market better for stockbrokers and the economy in general.
Well, for manufacturers, if you want to take money from banks and the interest rate is low, won’t you smile and say let me take it? But if the interest is high would you go to the bank and say you want to borrow money?
So, lower interest rate will help investors to re-activate closed-down industries.
Why more companies are not meeting up with posting-listing requirements
Some companies look for funds to recapitalise while some properly restructure their company. With the high interest rate, you can’t expect manufacturing companies to perform up to their optimal peak. Possibly they have come to the market before and it didn’t work out well with them. Shareholders sometimes urge companies to go to the money market instead of the capital market.
The Exchange will not want any company that is not doing well to be delisted. But when the operational terms between the Exchange and quoted companies are constantly abridged, necessary actions must be taken. For shareholders in such companies, it is time to question the management. If it is funds, they should seek shareholders’ intervention by raising fresh capital.
Shareholders should not be sleeping until their companies are delisted from the Exchange.
Since the NSE issued a warning to companies it has pencilled down for delisting, some of them have contacted it and disclosed what they plan to do. They have been given time to do the things expected of them. For us stockbrokers, any company that is at 50 per share should be allowed to be traded at par or below par.
Is stabilisation fund necessary for the market?
Of course, it is. If we get the money we will take it. Money dictates the direction of the market. They have such structures in place in other jurisdictions. It is only here in this country that we are compelled to do it by ourselves. That is why each time foreign investors come in to play in the market, it goes up but when they begin to offload, it begins to reverse.