Many telecommunication and oil and gas firms are not listed on the Stock Exchange, despite doing well. Yet, they are needed in the market to boost investments. How can they be brought in? It is by giving them incentives, says Group Managing Director of BGL Plc, Mr Albert Okumagba in this panel interview. Capital Market Editor TAOFIK SALAKO was there.
Less than five per cent of Nigerians participate in the stock market. What should be done to deepen participation in the stock market?
It is important to note that a lot has been done by the new management of the Nigerian Stock Exchange (NSE) in recent time. These efforts have increased interest in the Nigerian stock market and would continue to stimulate interest in the market for the rest of investors at home and abroad.
Improved trading platform, market transparency, corporate governance drive and market information, are areas the management of the Stock Exchange deserves commendation among others. Additional incentives in the areas of competitive transaction costs, stricter enforcement of listing and trading rules and regulations, as well as expansion of market depth are other areas that could attract investors to our market.
How will you assess the level of foreign investors’ participation in the market, especially with the security challenges?
The attractive valuation of most of the stocks on the Nigerian stock market and very competitive real return from the economy, makes it difficult for foreign investors to take their attention away from our market.
The return potential, as a major frontier market, more than compensates for the risks that insurgency in some parts of the country pose to foreign investment.
We are, however, of the opinion that the earlier we are able to overcome this challenge, the better for the capital market. All stakeholders in the market, including the Securities and Exchange Commission (SEC), NSE, Chartered Institute of Stockbrokers and other trade groups, are interfacing with foreign investors to allay or clarify risk perceptions.
What is your take on calls for legislative actions that will compel firms to list on the stock market?
Getting companies to list on the Exchange is a laudable idea and a good step in the right direction. It is however arguable that forcing companies to list on the Exchange might send a wrong signal on the attractiveness of the Nigerian stock market as a beneficial platform.
While I recognise that there are sizeable entities outside the market across the oil and gas, telecommunication, fast moving consumer goods (FMCGs) and conglomerates that would deepen the Nigerian capital market by listing their shares on the NSE, I am of the opinion that the stock market should woo them with incentives that create significant attraction to list their shares without compromising the corporate governance and transparency of the market.
A good place to start, which the current management is driving, is the review of incentives such as listing costs and fees. The Securities and Exchange Commission (SEC) is also very eager to see that more companies are listed on the NSE.
Again, we have argued that the federal government could lead by example by executing some of the privatisation of public enterprises programmes through the stock market. The power sector privatisation, in which 18 power firms were sold to private investors, is a classical case in point. The sales of the NIPPs are still ongoing with little or no consideration for the use of the capital market platform. We believe that if government executed these transactions through the stock market, the desired $1 trillion market capitalisation target can be reached easily while providing credible examples for multinationals and largely indigenously owned companies to follow.
How eould you rate the operations of market makers?
Perhaps the presence of market makers would have cushioned the impact of the stock market meltdown that greeted the economy a few years ago. All around the globe, market makers play a very important role in both the equity and bond markets. The major role is liquidity provision and so they stabilise the market by standing ready to intervene at moments of scarcity or excess supply of securities. Market making is too important a policy to be left out of the operation of an effective and efficient stock market.
However, as good as the operation of the market makers look, they hardly can perform optimally without the existence of a vibrant market for securities lending. Unfortunately, securities lending is as good as nonexistent in Nigeria’s capital market today despite the provision for it. Hence, market makers have been curtailed by the inadequate liquidity for securities lending in the market. We are however arguably in the right direction, with the legal structure in place, it is a matter of time before appropriate private sector organization step in to provide the securities lending services.
Will the increasing use of technology to drive stock market transaction not lead to abuse; and erode the roles of stockbrokers?
The X-GEN, which is the new trading platform used by the NSE, supports seamless remote trading and offers benefits such as direct market access and automated trading by investors through their dealing houses’ online platforms. The X-GEN is highly scalable and therefore able to cater for wider participation by retail participants via various devices like smart phones which are easily accessible. In other words, without compromising the importance of certified brokers, the market has now been further decentralised to investors at different levels. This democratisation of trading is also underpinned by SEC, which ensures that risk is still properly managed.
A certified stockbroker’s roles transcend trade executions for parties. A stockbroker is exposed to and possesses skills in equity valuation, bond valuation, corporate finance, portfolio management, alternative investment, derivatives and commodities. These combined attributes make such a stockbroker an expert fund manager, financial adviser and investment analyst amongst others. Therefore, beyond just entering trades, there is a lot more that brokers can offer that would make non-brokers to still require their services. In fact, the remote trading access to investors that the X-GEN platform promotes complements the skills of stockbrokers as it provides them room to focus on wealth management, fast day trading, and exotics among others. This incidentally happens to be one of the arguments being put forward as a case for the Bill to repeal CIS Act.
However, it is not impossible that some dealing members allow non-certified brokers to trade through the remote platform from their offices; it is however a major infraction of market rules and also exposes such dealing members to risks that are of high magnitude due to high probability of errors. The incentive for an average dealing house to take such risk is very low.
How can a viable private-public partnership that can be used to stimulate the development of the capital market be built?
The task is easier today considering the wide consensus across board- public and private sector, on the importance of the capital market to economic growth and development in Nigeria. You will recall that one of the things we were able to achieve two years ago as a precursor to the ongoing recovery of the stock market during the period was getting the Federal Government to implement palliatives for capital market operators. This template would be utilised to support the development of the capital market in the future. Also, the CIS Annual National workshop has remained a strong platform for the engagement of capital market stakeholders and policy makers on national development issues that affect the capital market. It is also an engagement platform for members who are market players, regulators and the policy makers- the government. It is part of the larger efforts to use the capital market as a catalyst for growth and of course development. We would continue to improve on the performance every year and expand the scope in 2015 and beyond.
As the president of CIS, what are your priorities?
The status of CIS as the foremost capital market professional body needs to be enhanced. This requires a combination of brand restructuring and improved access and engagements with stakeholders. In this regards, we will ensure that in the next 18 months, CIS moves to a befitting structure that would house our secretariat. The suitability of the institute’s structure would go a long way in having impact on the institute as a brand. We would also embark on brand projects that would situate the institute in the rightful place in the financial market and the Nigerian economy and make it a strong brand across Africa and globally. An important component of this is to work with the National Assembly on the speedy passage of the CISI Bill.
To expand Nigerians’ rate of participation in the capital market and improve national savings mobilisation for critical investment growth, our goal is to expand the access to our certifications by varied but related professionals. We would therefore immediately embark on the expansion of the certification programmes as well as the frequency of the examinations. We would also align the programme to America’s FINRA and UK’s CISI curriculums in the light of the unfolding sophistication of our markets. We intend to transform the examinations from paper based to electronic format to expand access at minimal costs to both the institute and members at all levels.
The relationship between the Institute and other professional bodies would be improved on while expanding local and international alliances. One issue that needs serious attention is the status of CFA charter holders and CIS certifications in relation to stock market trading permits. We would immediately resolve this and similar issues in our first 12 months in office. Besides, the process of graduating through membership to fellow would be immediately reviewed to remove the ambiguities and create a clear process and procedures for members to proceed from Associate Members to earning the Fellowship of the Institute.
While it is true to say that the institute is not as popular as some of its peers, its popularity has however, grown over time. Two of the major avenues through which the visibility of the institute can be made more pronounced are strong partnership with some of the listed companies and sponsorship of prominent events. At CIS, we are putting in place structures that would make us build a brand that would sell and therefore make companies to seek partnership with us. Since this appears to be a long term plan, in the interim, we plan to extend the hand of partnership that would be mutually beneficial to stakeholders.
You have been talking about growing the membership of the Institute. What is your strategy for this?
A lot has gone into expanding the membership base of the institute in the last few months. Some of the strategies being implemented to increase the names on the institute’s register of students and members include the review of curriculum and the variety of certification that the Institute offers with a view to making them more attractive and giving potential members many options. Also, the introduction of the monthly diploma certification exams for post-secondary school candidates posits significant potential for membership expansion. We are reviewing the registration requirements for the Diploma certification to further broaden its scope to accommodate other professionals with interest in the CIS programme. This monthly conduct of examination is to run from this month to August 2015 with the requirement being Secondary School Certificate across West Africa.
We are also expanding the CIS programme to the West African sub region and beyond in the long run. In this regard, all the exams will become bilingual-English and French, with exam centres computerised. It goes to say that the institute’s certificate becomes easily accessible by both Nigerians and non-Nigerians who are beyond the borders of the nation. Furthermore, a new curriculum scheme patterned after FINRA of America and CISI of the UK is to be launched.
Your programmes will definitely be capital intensive. How do you hope to improve the financial standing of the Institute?
Presently, our existing sources of revenue are registration fees, examination fees, sale of study packs and other materials and subscription. We, however, intend to add to these existing streams of income and also restructure the fees charged by the body across its various operation stages in other to make them competitive. The recent inclusion of diploma certifications offers opportunities to enhance our financial strength, while also expanding the scope of the Institute. We would further expand the diploma programme as a tool for revenue expansion. Furthermore, since there is a direct relationship between membership figure and revenue, the current effort aimed taking student population to 150,000 or more is another step in ensuring that the financial strength of the Institute is improved. We will sustain this process with significant emphasis on the Diploma programme without compromising the integrity of the Institute.
One major challenge has been ensuring that members pay their annual subscription and membership dues on schedule. In this regard, we would immediately develop strategies to motivate members to pay their dues while enhancing the penalties for defaulting on dues settlement. For those who currently owe the Institute, we would develop a settlement process that helps them clear the backlogs while ensuring ease of payment. Our model may involve a review of the membership fees to encourage members to pay on schedule.
One of the areas the Institute has not fully exploited is that of philanthropy and Corporate Social Responsibility (CSR). With millions of members in many large financial and non-financial companies in Nigeria, the Institute arguably has access to huge CSR support to fund credible projects it may decide to embark on. So, we shall explore this avenue to support our varied projects.
What is the relationship between the CIS and NASD?
It is one of partnership for regulation, compliance and professionalism. The same relationships exist between the Institute and other Self-Regulatory Organisations (SROs) like the NSE, FMDQ and others.
However, the new leadership will like to improve on the already cordial relationships between the CIS and the other SROs and regulators. This is in a bid to ensure that both the Institute and the other SROs work together, along with other stakeholders, to facilitate further development of the market by increasing the depth of the market as well as bringing more companies for listing on the NSE.
