The Nation Newspaper

Tag: Stockbrokers

  • Stockbrokers to pay for trading errors

    No stockbroker shall be allowed to trade on the Nigerian Stock Exchange (NSE) unless it maintains an account through which its trading errors will be cleared and settled, under a new rule being proposed by the NSE.

    A draft of the new rule titled: “Error Accounts” obtained by The Nation provides that no dealing member will be permitted to carry out any transactions using the facilities of the Exchange unless it maintains an error account in its name or it participates in an error account established for a group of dealing members.

    The draft of the new rule is undergoing preview by stakeholders and it is expected to be rounded off by the end of this month.

    According to the new rule, any transaction effected using the Exchange’s trading facilities, which results in a dealing member assuming or acquiring a position in a security as a result of an error and any transaction initiated on the trading floor by a dealing member to offset a transaction made in error shall be cleared in the dealing member’s error account or group error account unless the customer accepts the error transaction.

    The new rule stipulates that any transaction initiated on the Exchange’s trading facilities by a stockbroker to offset a transaction made in error shall be evidenced by a time stamped order ticket indicating that the transaction is to cover an error.

    The new rule requires stockbrokers to keep all records of errors with the audit trail data elements to include name or identifying symbol of the security, as may be required by the clearing agency; number of shares or quantity of security; transaction price; time the trade was executed; executing broker’s badge number, or alpha symbol as may be used from time to time in regard to its side of the contract; executing broker’s badge number or alpha symbol as may be used from time to time of the contra side of the contract; clearing firm’s number, or alpha symbol as may be used from time to time, in regard to its side of the contract; clearing firm’s number, or alpha symbol as may be used from time to time, in regard to the contra side of the contract; whether the account for which the order was executed was that of a dealing member and, if so, the identity of such dealing member and any other information as the Exchange may from time to time require.

    Besides, the brokers are expected to provide the nature and amount of the error; the means by which the dealing member resolved the error with the member that cleared the error trade on the dealing member’s behalf and the aggregate amount of liability that the stockbroker has incurred and has outstanding, as of the time each such error trade entry was recorded.

    According to the rule, an error may be resolved by the customer accepting the error transaction as executed and the broker paying the customer to settle the amount of the error. However, if the customer does not accept the erroneous transaction and the order cannot be executed on its original terms or better in the then current market, the stockbroker must issue a report from its error account; and such report may be confirmed to the customer as an Exchange transaction provided there is a transaction on the Exchange in the error account that reverses the erroneous trade.

    “A dealing member shall report to the Exchange all error transactions in such dealing member’s account which result in a profit of more than N50,000, for any single transaction, or an aggregate profit of more than N500,000 in any calendar week. Such reports shall contain a detailed record of the errors and liquidating transaction,” the new rule stated.

    Any stockbroker that contravenes the ‘error rule’ will be liable to a fine of N5,000 payable for everyday during which it remains in default in addition to any other sanctions that the Exchange may impose.

     

  • ‘Stockbrokers need to develop innovative products, services’

    ‘Stockbrokers need to develop innovative products, services’

    Stockbrokers must work assiduously to create and introduce innovative financial products and instruments that will help reduce Nigeria’s infrastructural deficit and provide avenues for companies to raise funds for the critical sectors of the economy.

    President, Chartered Institute of Stockbrokers (CIS), Mr Muritala Olushekun, who spoke during the induction of new stockbrokers in Lagos, said stockbrokers need to develop financing means that will help Nigeria to successfully tackle the power, housing and energy challenges through the capital market.

    According to him, the degree of professionalism, creativity and integrity of the stockbroking industry would impact on the extent of capital formation and distribution as well as overall development of the economy.

    “My message this evening;, is that we have been given our marching orders. The degree to which chartered stockbrokers are in the forefront of those providing workable capital market solutions to the infrastructure challenges we face as a nation is the degree of viability, prestige and demand that our great profession will enjoy,” Olushekun said.

    He underscored the importance of specialisation and core expertise noting that while stockbrokers are trained generally to perform several functions, the sure way to succeed in the coming years in the industry is to specialize in the area where one has comparative advantage including financial and investment advisory services, corporate finance, asset management, proprietary trading, market and specific company research.

    “The future belongs to Stockbrokers who meet the needs of investors through superior service, having invested in capacity building and acquired cutting edge skills in transaction origination, structuring and above all, robust research,” Olushekun said.

    In veiled response to some trade groups which had erroneously narrowed the training scope and functions of stockbrokers, the CIS President said a stockbroker’s functions by training and practice, encompasses securities dealing, investment advisory and management, trusteeship, custodianship, financial planning and advisory and corporate finance among others.

    “Stockbrokers have since the inception of the Nigerian capital market pioneered these functions and activities, indeed, investment banking in Nigeria,” Olushekun said.

    He advised the newly inducted stockbrokers to maintain integrity in dealing with clients in the Nigerian capital market and ensure that their word is their bond.

    According to him, stockbrokers are a privileged group of professionals, entrusted with the investments and in most cases, the life savings of investors.

    “When dealing and investing for your clients and advising them on the construction of their portfolios, your word as a broker, must be your bond. To steer clear of misconduct, it is imperative and absolutely necessary that you study the new “Code of Ethics and Standards of Professional Conduct”, this will help ensure personal and professional success and help cement and augment the gains we have all witnessed in the Nigerian capital market in recent times,” Olushekun said.

    According to him, in order to be among the best in the securities and investment field and to ensure they render quality service to their clients both institutional and retail, brokers must always update their knowledge base by ensuring that they meet their annual continuing professional development requirements.

    He pointed out that the CIS is a member society of the Association of Certified International Investment Analysts (ACIIA), which afforded the opportunity to CIS members to practice in over 37 countries in Europe and Asia, Japan and China included.

    According to him, a Certified International Investment Analyst (CIIA), can practice professionally in any of the 37 member countries, subject to taking and passing a paper covering knowledge of all ethics, rules, regulations and Market structures and Instruments in the local country.

    He added that membership of the CIS is also recognised by the Chartered Institute of Securities and Investments (CISI) in the United Kingdom, which allows an Associate Member of the CIS to be eligible to become an Associate Member (ACSI) of the Chartered Institute of Securities and Investments (CISI) UK, without any examination requirements.

     

  • How to sustain capital market growth, by stockbrokers

    Capital market stakeholders need to devise means to tap into Nigeria’s huge population and key economic segments to catalyse the growth of the capital market.

    President, Chartered Institute of Stockbrokers (CIS), Mr. Ariyo Olushekun, outlined the path to sustainable growth for the capital market in a chat with The Nation.

    He said the future growth and the stability of the market rests on massive participation in the market by average Nigerians and large companies, which control the key economic segments of the country.

    According to him, the future of the market lies in pooling resources of average Nigerians to form huge capital base that would enhance the effectiveness of long-term financial intermediation role of the market.

    He said improved domestic investors’ base could be achieved through proper investors’ education and awareness, noting that emphasis should be focused on the long-term values and benefits in the market rather than short-term fluctuations.

    He added that collective investment schemes such as mutual funds should be encouraged as they would minimize the risks and frustrations being faced by average individual investors.

    Olushekun noted that listing of major companies in key segments of the economy including oil and gas, telecommunications and power sectors would not only deepen the depth of the market but also encourage more Nigerians who view those companies as cash cows to participate in the market.

    He advised that the government should include compulsory quotation clause in the agreement for sale or licensing of any major utility so as to open up the opportunities in fast-growing segments of the economy to average Nigerians. Quotation clause will make it compulsory for the company to list its shares on the Nigerian Stock Exchange (NSE) within a timeline.

    A latest report on foreign portfolio investment flow at the NSE between 2007 and March 2013 showed that foreign investors gradually and consecutively increased their investments in Nigerian equities from about 15 per cent of total market turnover in 2007 all through till a high of about 67 per cent in 2011.

    Foreign portfolios were particularly the main drivers of transactions on the NSE in the past two years, with foreign investors accounting for average of two-thirds of equity transactions between 2011 and 2012.

    Nigerian investors have however, made strong rebound this year, displacing foreign portfolios as the main drivers of stock market’s transactions. Compared with the situation in 2011 and 2012 when foreign investors accounted for 67 per cent and 61 per cent of total turnover on the NSE, foreign investors now accounted for about 43 per cent.

    Nigerian institutional and individual investors stepped up their transactions from a recent low of 33 per cent in 2011 to 39 per cent in 2012 and now currently account for more than 57 per cent of total transactions.

    The report underlined the early positioning of the foreign investors, who had saw through the prospects of Nigerian equities amidst the downtrend and the rampant herd instinct of the domestic investors, who mostly usually look at recovering market.

    The two-way flow of foreign portfolio investments showed that while foreign investors flowed in about N2.01 trillion during the period, they equally took away about N2.17 trillion.

    Foreign portfolio transactions increased from N615.6 billion in 2007 to N787.4 billion in 2008. These trimmed down to N424.6 billion in 2009 before rising consecutively to N577.3 billion and N847.9 billion in 2010 and 2011 respectively. Foreign portfolio trades stood at N808.4 billion in 2012 and were reported at N215.6 billion by March 2013.

  • Operators attribute bullish run to retail, institutional investors

    Stockbrokers and investment pundits in the capital market have attributed the stellar performance of the market to renewed interest in the equities market by retail and institutional investors.

    Managing Director, Compass Securities Limited Mr Emeka Madubike, said retail and institutional investors increased their participation in the market to be part of the success story.

    Managing Director, Trust Yield Investment Limited, Alhaji Rasheed Yussuf, said investors were moving funds away from the money market because of the Sanusi’s remarks on the increasing debt stock.

    They said the growth followed decline in yields from treasury bills and government bonds.

    In separate interviews, the brokers said the new position of the Central Bank of Nigeria (CBN) to tackle inflation and rising debt profile contributed to the market growth.

    CBN Governor, Mallam Sanusi Lamido Sanusi warned the Federal Government to stop accumulating debts for future generations. He said the level of debt, if unchecked, could cause hardship for future generations.

    Yussuf said investors were also moving away from government securities to equities in anticipation of apex bank’s review of the monetary policies in 2013.

    He said opportunities in the market were enormous and that institutional investors were taking positions in the market ahead of 2013.

    Another stockbroker added that the reforms introduced into the market needed to be sustained for sustainable growth. He said there was the need for more investor education to increase local participation.

  • Stockbrokers may embrace bailout package

    MANY debt-pressed stockbrokers appeared to have no choice in resolving their debts and and illiquidity outside the forbearance package announced by the Finance Minister Dr Ngozi Okonjo-Iweala despite the stringent terms attached to the forbearance package.

    A major market operator, who craved anonymity, said brokers can only reject the Federal Government’s package if there is a better option.

    Already, there are indications that about 20 per cent of the 84 stock broking firms, which have been listed as beneficiaries of the package, might reject the offer.

    Earlier, President of the Association of Stock brokering Houses of Nigeria (ASHON) Mr Emeka Madubike said the decision of the Asset Management Corporation of Nigeria (AMCON) is wise, adding that it would allow brokers to be treated equally.

    He said brokers, who are represented by AMCON, could only allow for a better negotiation of equal conditions instead of having the banks to deal with individuals which might give room for double standard.

    His words: “The conditions are stringent but not too stringent and some stockbroking firms will be taking it. We have met and have decided that the conditions are okay, though some stockbrokers will not be taking the offer, majority will be taking it.

    “However, the most important thing for us is that the government is finally recognising the importance of the capital market to the economy and they are looking our way”, he said.

    The Chief Executive of AMCON Mr Mustapha Chike-Obi last week confirmed that some brokers would reject the government’s bailout package.

    According to him, there has been feedback that many of the stockbroking firms would reject the forbearance package due to the stringent rules that comes with the package, adding that some of the stockbroking firms believe they would not comply with the rules.

    Chike-Obi has said the corporation wiould send letters to each of the 84 stockbroking firms informing them of the offer and giving them a timeframe to ether take or reject the forbearance package.

    The Finance Minister recently announced a bail-out package for 84 stockbroking firms affected by margin loans, which may run up to N22 billion.

    One of the conditions set for the brokers is that they would not consult for any firm for three years.

    However, some brokers said though the conditions were stringent, some of them would still go ahead to take the package.

  • Stockbrokers catalyst for economic growth

    Stockbrokers catalyst for economic growth

    The role of the capital market as the catalyst for an economy is undisputable. But stockbrokers, who are the backbones of the capital market, have for long been in the shadow.

    The Chartered Institute of Stockbroker (CIS), which certifies and regulates the conduct and practices of the stockbroking profession, had played behind-the-scene role in recommending economic policies to government. But the behind-the-scene approach has ensured little or no recognition for the virile contributions of stockbrokers.

    The first-ever national workshop of the CIS pivoted stockbrokers to the forefront of national discourse and policy recommendations. With the theme: Working the Transformation Agenda- the real issues, the event held at the prestigious Transcorp Hilton Hotel, Abuja brought together major policy makers in the financial markets and the economy and lived up to its billing as a platform for private-public sectors’ engagements on national growth and development.

    The event attracted regulators of the capital market and relevant government agencies and parastatals like the Bureau of Public Enterprises (BPE), Debt Management Office (DMO), the Federal Ministry of Power and a key player in the telecommunication sector like MTN Nigeria. The workshop put in the front burner two major issues- power and telecoms.

    Although the telecoms sector is seen to have taken off the ground in Nigeria, stockbrokers believed that it has not yet fulfilled the much desired purpose of being a catalyst for democratising wealth creation for the people of Nigeria, especially investors in the capital market. None of the four telecom giants-MTN Nigeria, Airtel, Glo and Etisalat, operating in Nigeria has deemed it fit to list their shares on the Nigerian Stock Exchange (NSE).

    Director-General, Securities and Exchange Commission (SEC), Ms Arunma Oteh, in her opening remark at the workshop, said the capital market was critical to the growth of the Nigerian economy.

    According to her, the easiest way for outsiders to see Nigeria is through the capital market. The market is very useful to support government in sourcing cheap funds for economic growth as annual budgetary allocations especially as it concerns capital projects would never be enough to deliver dividend of democracy to the people.

    She noted that the recent forbearance gesture for the capital market by government was a step in the right direction as it was necessary to refuel the economy.

    She pointed out that relentless efforts are being made to further deepen the market by getting highly capitalised companies in both the power and telecom industries to list their shares on the NSE as well as create additional flow of wealth through other sources like the Sovereign Wealth Fund (SWF), Collective Investment Scheme among other sources.

    “The consultative approach we have taken to call large companies to the capital market will soon begin to yield fruit,” Oteh said.

    She predicted that 2013 will be a better year for the capital market urging all operators to play constructive roles in the development of the market.

    Chairman, CIS Annual National Workshop Committee and Group Managing Director of BGL Plc, Mr Albert Okumagba, said the workshop was only the beginning of serious engagements on national issues noting that CIS has more to offer the economy through its national workshop in the years ahead.

    According to President, Chartered Institute of Stockbrokers (CIS), Mr Ariyo Olushekun, said the workshop woule be organised annually and it would initiate and advance national discourse on economic issues while also serving as a platform for monitoring economic policies and implementations.

    Chairman, Technical Committee of the National Council on Privatisation (NCP), Mr. Atedo Peterside,who chaired a session, painstakingly addressed concerns on the current power reforms. Peterside, a revered investment banker who doubles as chairman of Cadbury Nigeria Plc and Stanbic IBTC Hioldings Plc , said the successful implementation of the power agenda will result in a dramatic boom for the economy.

    According to him, milestones that have been achieved since 2005 included the passage of the Electric Power Sector Reform Act by the National Assembly in March 2005, which outlined the framework of the reform which among others include unbundling the state owned power entity National Electric Power Authority (NEPA) into generation, transmission and distribution segments; provision for the transfer of assets, liabilities and staff of NEPA to Power Holding Company of Nigeria (PHCN) and then to successor generation, transmission, and distribution companies.

    He also noted the incorporation of 18 new successor companies comprising of six generation companies (gencos), one transmission company (TCN) and 11 distribution companies (discos) in November 2005 as well as the transfer of the assets, liabilities and staff of PHCN to successor companies, thereby granting the latter greater operational autonomy on July 1, 2006.

    He said that the approved five preferred bidders for Genco and 10 preferred bidders for Disco are expected to yield about $2.5 billion for government.

    He added that eligible prequalified bidders have been invited to express an interest in Afam genco and Kaduna disco on or before January 31 2013.

    Though Peterside acknowledged that the process of privatisation of the power sector has not been without its challenges, he assured the workshop that the process has reached an advanced stage given the selection of preferred bidders , a transaction which is likely to be closed by mid 2013.

    He urged all the stakeholders, including the stockbrokers, to support the power reform agenda to ensure that all its objectives were realised within the timelines.

  • Stockbrokers explore mergers, acquisitions to boost business

    Amid fast-paced changes in the financial markets industry, stockbrokers have evolved self-induced business consolidation to enhance the competitiveness of the trade group and build up enormous capital and other resources needed to compete with foreign and domestic investment banking and advisory firms.

    Industry sources confirmed that stockbrokers, mainly founded on sole entrepreneurship, are, now more than before, open to discussions on mergers and acquisitions, giving the shrinking operating space for small firms in the industry.

    There are some 300 stockbroking firms trading at the Nigerian Stock Exchange (NSE). Stockbrokers earn barely four per cent as total brokerage on complete buy and sale stockbroking transaction.

    Although several stockbrokers are registered for other functions, such as corporate finance and investment advisory, they face strong competition from banks, insurance and other financial services companies who provide similar functions.

    The meltdown at the capital market, which has left the new issues market prostate since, has also ate deep into the income base of stockbrokers, who made more incomes acting as parties and agents to new issues. Under the rules of the Nigerian Stock Exchange (NSE), only a stockbroker can introduce a company for initial listing or facilitate supplementary listing of already quoted company.

    Two chief executives of stockbroking firms that have consummated their companies under a new brand confirmed to The Nation that they opted for merger to create synergies that would lead to a more profitable and stronger firm.

    According to them, the new company, which has been granted approval by the regulatory authorities, would play actively in key areas of the capital markets, especially fund raising while also exploring opportunities in the public sector.

    They noted that the combination of their capital, expertise and technologies has reinforced clients’ confidence in the company and would form the unique selling points in its branding campaign.

    A source indicated that several other firms were exploring similar consolidation or varied forms of cooperation, including entering into memorandum of understanding to form a consortium of independent firms that can jointly bid for and execute transactions.

    The source noted that though the risk-based capital requirement regime being proposed for the industry may still allow small firms, the convergence of foreign and domestic big players would continue to put pressures on small firms. Stockbrokers are required to have minimum capital base of N70 million.

    Already, only about 20 firms account for over two-thirds of trades at the NSE, with foreign-affiliated firms leading the list.

    Stockbrokers have also come under pressures from the debts overhang and liquidity crunch from the 2004-2008 market boom.

    Stockbrokers have been lobbying government to intervene and resolve the debt overhang and liquidity crunch.

    Former president, Association of Stockbroking Houses of Nigeria (ASHON), Alhaji Rasheed Yusuf, said the meltdown at the stock market has defied all solutions because the critical element of funding was missing.

    According to him, with banks not funding the market, apathy from local investors and the crisis in the advanced economies that has affected foreign investors, providing alternative funding mechanism to break the crunch within the stockbroking community becomes the most critical issue.