Mr. Mounir Gwarzo, director general, Securities and Exchange Commission (SEC), in this interview with select capital market editors, situates the performance of the stock market within the context of the macro economy and highlights the prospects as the commission leads stakeholders in the implementation of far-reaching initiatives. Capital Market Editor, Taofik Salako, reports.
how will you assess the performance of stock market in 2015?
2015 was a very difficult and challenging year not only for the capital market but for the entire economy. You know that the country is going through difficult times; oil and commodity prices are very low and access to foreign exchange is also not very easy. The stock market is a reflection of the state of the economy. Apart from the public sector, it provides the highest level of employment and provides 60 per cent of corporate tax. Therefore, it does not operate in isolation of the economy. And what we are experiencing in the stock market is not peculiar to Nigeria. Our stock market closed 2015 with a negative full-year return of -17.36 per cent. The market capitalisation of many jurisdictions also closed in the negative such as United States of America, -2.0 per cent; United Kingdom, -12 per cent; Greece, -60 per cent; Brazil, -39 per cent; Malaysia, -25 per cent and South Africa, -35 per cent.
But beyond pricing, the year 2015 was generally an eventful year for the Nigerian capital market given several initiatives undertaken to strengthen the market and make it more globally competitive. When I came on board in January as acting director general, I informed the market that I had only one agenda. And that agenda was to faithfully and religiously implement the capital market master plan and we have been doing quite well.
Within the master plan, we identified a number of initiatives for implementation in 2015. We also focused on internal issues within the SEC because when we came in, there were staff related outstanding issues like promotion which were negatively affecting staff morale. I am happy to report that all those issues have been sorted out. So internally, it has been quite a rewarding but difficult year. From the market side, the implementation of the master plan has been fruitful.
Let me return to the initiatives we set for ourselves as target for implementation in 2015 and how far have we gone. One of the initiatives is the need to strengthen the capital market operators (CMOs) and you will recall that we came up with minimum capital requirements and set September 30, 2015 as deadline. I am happy to report that the deadline has lapsed and we have kept to our word. We have last week released the final list of compliant operators which showed that out of the total number of provisional list of the CMO’s we released as at September 30th, 2015, 24 of them did not make the final list because they could not substantiate their submissions.
We also came up with the list of firms that have been inactive. We think we should not be maintaining these inactive operators in the market which we have been carrying for many years now. We have about 94 of them and in compliance with the law, we published their names and informed them that whoever wants their licence to be retained should come forward and provide justification and gave the deadline of December 4, 2015 to give reasons why their licences should not be revoked. And after our review of their submissions, licences of 84 of them were cancelled while the public was duly informed. In doing so, we have written to CSCS to ensure that investors do not suffer from the cancellation of those licences. Investors would be sensitised to ensure that they transfer their assets to another stockbroking firm of their choice.
The second initiative we also pursued was the issue of electronic dividend (e-dividend). We are enjoying an excellent collaboration with Central Bank of Nigeria (CBN) and Nigerian Inter-bank Settlement System (NIBSS). They have provided us with their Bank Verification Number (BVN) platform. We also have the support from the Banker’s Committee. As at today, the e-dividend form is with all bank branches and registrars nationwide. So any investor who wants to complete the form must approach either a bank or registrar and they have been duly informed through public enlightenment which is still on-going. We have also issued posters that have been pasted in banks informing investors that if they want their e-dividend form, all they need to do is to collect and submit the form in either of the two places mentioned. We expect the exercise to be completed in the next two to three months. Although it is an on-going process, there is a timeline of three months in which investors are expected to complete the forms and submit, and at the expiration of the deadline, any investor that intends to complete and submit must pay a fee of N100. I therefore, wish to call on every investor to take advantage of this period and complete and submit their forms. Thus in a very short period, companies would be able to credit their shareholders with their dividends because all the data would be there.
The other initiative we have also concluded is the issue dematerialisation. This has been an issue in the market for 20 years since the inception of Central Securities Clearing System (CSCS) in 1995. The problem was the fact that the record of the CSCS was clearly different from the record of the registrars. In fact, as at July last year, CSCS informed us that barely 30 to 40 per cent of shares that were with the registrars had actually been dematerialised. But I am happy to report that we have achieved 100 per cent dematerialisation. There will certainly be some reconciliation issues which we have directed both parties to continue to interface with each other.
The fourth initiative that we have successfully concluded is the issue of direct cash settlement (DCS), which ensures direct payment of sales proceeds to the selling investor by the clearing system rather than through the broker as intermediary. With the DCS, once a client’s shares are being sold, while the broker’s account is being credited with brokerage fees, the account of the client would also be credited directly. So the era of a broker remitting the funds to account of a client will be a thing of the past. In the past, there have been some issues, when the broker is meant to remit the proceeds to the client, but for some certain reasons, there is either delay or not done. And let me commend the excellent efforts of the members of the committee that work round the clock to ensure the actualisation of this initiates. The DCS began operations on Monday, January 4, 2016 and it’s not compulsory that every investor must give such a mandate. Any investor that wants the broker to keep the proceeds of his or her shares, especially speculative investor, should write to the broker and such broker will in turn inform CSCS. There have been a lot of improvements in terms of infractions in the market and with DCS; such infractions will almost be eliminated. We made a commitment when we came on board that infractions will not be tolerated and methods by which such infractions are committed will be eliminated. So these are some of the critical initiatives, which I am happy to say have been achieved successfully well.
SEC has subsisting corporate governance code, how is the corporate governance scorecard that you launched in 2015 relevant to corporate governance?
Again, the corporate governance scorecard is actually one of the initiatives identified in the master plan. In the last four to five years, there have been discussions about corporate governance scorecard and there is a provision in our rules, which makes it mandatory for companies to comply with the code of corporate governance. But what has been lacking is just to have the scorecard that is able to assess the level of compliance. The one we launched last November is the first to be launched in Africa. What the scorecard means is that there will be checklist of requirements that every quoted company must have to comply with. So the scorecard has questions, requests answers from the companies, saying that they have met so and so aspects of the corporate governance code, have met ABCD, and have done the XYZ etc. And the scorecard is to be completed and submitted by every company and if for any reason, the company is not able to meet any of the requirements within the scorecard, the company will now have to explain. So it is just about disclosure for investors to ascertain which company complies fully with the scorecard and which one does not, this will give confidence on that company and I believe by having that scorecard, companies will be more up and doing because they know that investors will be monitoring and judging them based on their scorecard. Everywhere in the world, the belief is that a company that complies fully with the code of corporate governance is likely to do better in terms of performance, growth and sustainability as a going concern.
What are you doing to deepen the market nationally and within the regional bloc?
We have launched the National Investors Protection Fund (NIPF). The master plan recognises the need for an NIPF that can give succour and comfort to investors who innocently invested in the market and for certain reasons they lost their money. Already, there is the Investors Protection Fund (IPF) being managed by the Nigerian Stock Exchange (NSE), which is meant to address issues relating to the dealing members of the NSE, that is, it is strictly for members of the NSE. The Investment and Securities Act (ISA) mandates all exchanges to set up an IPF which is to address issues within the market. The other Platform Financial Market Dealers Quotations (FMDQ) is also making efforts to bring on board its own IPF. Our NIPF will therefore address infractions relating to the activities of operators such as; issuing houses, fund managers, registrars, custodians, trustees and all other non-broker/dealer operators registered by the SEC. SEC was magnanimous within its limited resources to set aside N5 billion for that fund, and I wish to commend the foresight and efforts of the previous SEC board under the Chairmanship of Distinguish Senator Udo Udoma, the current Honourable Minister of National Planning.
Let me clarify that it does not mean that if you invest N1 million and you lose your money and then you will now come and SEC will give you N1 million. The procedures are very robust. The operator must be registered with SEC, the functions that the operator performed must be in line with what that operator has been registered for, the investor must have done the necessary due diligence on that operator, and SEC must have established a clear negligence from that operator and the maximum any investor can get from the NIPF is N200,000. So the idea is not to pay back what the investor had lost but to pay something in the interim, before SEC does its necessary due diligence in terms of inviting the company, looking at the assets of the company, selling the assets and recovering what to settle the investor. And once those monies have been recovered, SEC will now deduct that N200,000 was extended to the investor, and I’m happy to report that the first beneficiaries of 554 people that invested in Mega Assets and the board of NIPF has approved the payment, their names have been published inviting them to go to our zonal offices in Lagos and Onitsha and last week I approved the disbursement of the 1st batch of people that have submitted their names and payment details.
We also launched the Capital Market Master Plan Implementation Council (CAMMIC), which is a new thing in the history of the Nigerian capital market for the market to have a council dedicated to advocacy for capital market initiatives. So if there is initiative in the market and there is need to upscale that initiative to a higher level, it is that council that will now interface either with executives or with the legislature or even with the judiciary with a view to ensuring that the initiative is given attention. We believe it will bring a lot of changes; it will be a game changer because you are dealing with people who are of high integrity, people who understand the market, and people who have lived for this market for the last 30 to 40 years. The council has Mr. Tola Mobolurin, who has been in the market for I believe over 40 years, as its chairman.
Also, during the year, we took important steps to address the issue of unclaimed dividends. We issued a directive to all registrars instructing them to return all dividends older than 15 months in their custody, including those that are statute barred to the issuing companies. This is important because along with e-dividend, it will put a stop to the growth in quantum of unclaimed dividends.
We equally did a lot in the non-interest capital market space especially in organising regional round table events to sensitise potential issuers of non-interest products like the sukuk. We moved forward with the integration efforts of West African capital markets. The committee of regional exchanges had done quite a lot in that regard, what was lacking was the full involvement of the region’s regulators. Within 2015, we the regulators came together here in Abuja and signed a Memorandum of Understanding (MoU) that established the West African Securities Regulators Association (WASRA) to push the integration initiative forward.
Within the context of all what have you said, what hopes for the investors and the market, especially given the continuing decline in share prices?
My advice to investors is that they should not lose hope. The stock market everywhere in the world has its own risks of going up and down. That is normal. There is no stock market in the world that will only continue to grow without declining. Sometimes it will rise, sometimes it will fall, that is the beauty of a stock market. But the fundamentals of the companies are largely okay.
There are some companies that are not doing too well, while there are some that are doing better. With the corporate governance scorecard that we are introducing, companies are going to do much better and so once they imbibe that culture of corporate governance, the performance of the company will definitely improve. This is the time for investors to come into the market. The attitude is that once stocks are low, that is the best time to come in. What is important is to see where those stocks have potential to rise.
We need to understand the context clearly. The foreign investors that constitute between 25 to 35 per cent of the market are the real portfolio investors. They buy and sell on regular basis while the domestic investors both institutional and retail largely buy and keep their investments unlike their foreign counterparts, and because the market is not very deep, any movement in say the banking sector which constitute significant portion of the market capitalisation will show a corresponding movement in the total market capitalisation.
On our part, we are collaborating with the Central Bank of Nigeria (CBN) in terms of introducing Unified Licensing Model for market operators to access the money market for liquidity. Once, we are able to do that, I think the market will be better. We are also looking at how we can bring in the huge unclaimed dividends that we have in the market so that it can be invested and this can be done either through the setting up of National Trust Fund or each company to set up its own Trust Fund and register with SEC.
What are those things that will define regulatory activities in 2016?
Going into 2016, we will continue our faithful implementation of the master plan, we have already identified the master plan initiatives that will receive priority attention in 2016 including pushing for more listings of large companies operating in Nigeria especially from the upstream oil & gas and telecommunication industries. We also have a number of initiatives lined up for small and medium enterprises (SMEs), we want to make it easier for SMEs to list by relaxing listing requirements and proposing fiscal incentives for them. We will equally do a lot on reduction of transaction cost, pushing for more liquidity, demutualisation of the NSE, strengthening the commodities markets and many others. It will be a busier year than 2015.
