Regularisation of accounts will increase liquidity in capital market- SEC DG
…Says we reduce transaction cost to attract investors
By Udeme Clement
The Nigerian Capital Market Committee, CMC, held its second quarterly meeting for 2018 fiscal year, on Thursday, August 9, 2018. The meeting is a periodic gathering of stakeholders in the Nigerian capital market, to discuss capital market related activities. The Acting Director General, Securities and Exchange Commission, SEC, Ms. Mary Uduk, spoke with Journalists on the outcome of the meeting.
The CMC recently held its meeting in Lagos. What were the major highlights of the deliberation?
As you are aware, the major essence of this quarterly meeting is to identify challenges affecting operations, as well as activities in the Nigerian Capital Market, and to proffer solutions.
This edition of the CMC meeting was not different, as participants identified various issues that required extensive review and urgent attention. Some of which are e-annual reports, extension of forbearance for multiple share subscriptions, progress in e-dividend registration. Others include constitution of a Committee on Fin Tech and the implementation of recommendations of various committees among others.
How far has the implementation of e-annual report gone?
Over a year ago, the SEC spearheading the market saw the need to embrace electronic annual report distribution for three reasons. One, we discovered that the cost of printing annual reports, which in many cases gets to investors very late, many months even after the AGM has been held, such money would have been wasted. So, we discovered that rather than waste such money, it is better to distribute these annual reports electronically.
The second advantage is that because technology is taking over the world and wherever you are in the world, once your email address is known, you can receive the audited annual report electronically. And we discovered that the money that was being wasted for printing annual reports would now be distributed as part of dividends. So, why do you want to waste such money, when it can be directed to shareholders as dividends?
We gave the market to implement a pilot exercise for one year. That one year ended in June, when it ended, SEC conducted an impact assessment to see how it went. At the CMC meeting, it was considered and it was agreed that technology is the way to go. We observed that shareholders have one or two challenges about the issue. One is that of awareness and the market has agreed that awareness on this would be intensified. Two, we are making greater efforts to ensure that we get the email addresses of all the shareholders. Thirdly, we have agreed in addition that there should be enlightenment campaigns. And for those who do not have internet, which is one of the issues that the shareholders raised, it has been agreed that physical copies would still be distributed as a mix with electronic version.
We believe that within the next five years, technology would continue to expand to remote places.
We have also enjoined registrars that at every AGM, they should take a few minutes to enlighten shareholders on the benefits of electronic annual report.
What about the Minimum operating standards. Was it discussed at the meeting?
Yes, it was discussed as part of the Commission’s initiative to enhance efficiency and effectiveness of the Capital Market operations. A number of initiatives are being taken. About two years ago, the Commission introduced the Risk Based Supervision for Capital Market operators, in addition to that, we also set up a Committee to come up with a Minimum Operating Standards for Capital Market operators. The Committee has submitted its report and some of the recommendations include manpower and equipment, organisational structure, as well as technology effective processes. The report was discussed at the CMC meeting and adopted. After that, the relevant department in the Commission would work with the leadership of the Trade Groups to implement the recommendations. We have minimum of two years to implement that.
One advantage we have is that the Nigerian Stock Exchange, NSC, has already implemented the Minimum Operating Standard for stock brokers. Now, what we are going to do is also to implement the Minimum Operating Standards for the Registrars, fund managers, issuing house, custodian and the rest of them. We would commence immediately following the adoption of the recommendations of that Committee at the CMC meeting.
We are now on forbearance of multiple subscriptions.
During the banking and insurance sectors consolidation between 2004-2007, there were a lot of issues in the primary market, because the banks/insurance companies came to the market to raise funds. During that period, a lot of people came to the capital market for the first time and they saw the Capital Market as a place where they could make a lot of money. So, a lot of them bought shares in different names. Today, those shares are not in the system, because if you are not able to identify yourself properly and then those shares in the system, those shares cannot be captured in the system. We are saying come and regularise that situation and get back your shares, which are being warehoused somewhere. There is absolutely no punishment attached to it, the SEC is not punishing anybody. We just want such individuals to come and regularise that transaction between now and 31 December, 2018.
The objective of doing this it that, it would increase liquidity in the market because the shares are just there no trading on them. Not only that, the investors cannot claim their dividends too and that increases unclaimed dividend. Let them come and regularise, so that there would be increase in trading of those shares and they would also claim their dividends. So, the balance of unclaimed dividends would also go down.
What is delaying crowd funding in this market?
I want to assure you that the SEC is very desirous in having rules on crowd funding. We have severally discussed it and we want to have crowd funding in this market but we have a challenge.
First, the CAMA, which is the primary regulation for all companies, does not have provision for crowd funding and even if it has, ISA does not support it. I want to assure you that with the review of ISA, that provision is now there. When it is approved, we would be able to have it.
Why is the demutualisation of the Nigerian Stock Exchange taking so long?
That is going on, as we speak, the bill is with the Presidency, the National Assembly has passed it.
Has cost of raising funds in the market reduced?
What we did in terms of trying to enhance issuance is to look at the entire value chain holistically, and look at the issues that actually impede on issuers coming to the market. One of them was transaction cost. There was a Committee that was set up and a study was conducted. It was observed that our market was very expensive in terms of issuance at the primary level. So, the Commission in collaboration with other stakeholders looked at the cost of issuance.
If you are coming to the market how much would the issuer pay?
The rule has provided a limit of 3.17 for equities and 3.97 for fixed income. What we did in conjunction with other stakeholders was to look at the entire costs. Everybody agreed on how to reduce the cost, in order to incentivize issuers to come to our market and that was what we did.
We reduced the cost of equities from 3.17, and then for fixed income, we reduced from 3.97 to 3.28. It was a pilot study for one year, after which we would do an impact assessment to see how it would impact on the market.
I can say it has started impacting because issuers are coming and they are happy that the transaction cost has been reduced. It is a value chain, but it has started giving result. At the end of the one year, the Commission would conduct an impact assessment to decide if we can move forward or make amendments.
(This is the first part of this interview. Segment-2 would be published tomorrow on the, “Measures in place to prevent the market from reacting during 2019 elections”.)