Nigeria’s apex financial services regulators have started discussions on a new framework that will expand the scope of operations and allow brokers and dealers at the capital market to have access to the interbank market and the primary official discount window.
The Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator and the Central Bank of Nigeria (CBN), Nigeria’s apex bank, are leading other stakeholders to open up a new ecosystem for the stockbroking industry.The new ecosystem for the main capital market operators was part of the highlights of the discussions at the second quarter meeting of the Capital Market Committee (CMC) meeting held in Lagos.
The CMC, chaired by the Director General of SEC, consists of chief executives of all registered capital market operators, chief executives of all Self Regulatory Organisations (SROs) including the Chartered Institute of Stockbrokers (CIS); Nigerian Stock Exchange (NSE), NASD OTC Plc, Nigeria Commodities Exchange (NCX) and Central Securities Clearing System (CSCS); two members each from other key stakeholders including included Asset Management Corporation of Nigeria (AMCON), Central Bank of Nigeria (CBN), Corporate Affairs Commission (CAC), Debt Management Office (DMO), Federal Ministry of Finance, Federal Mortgage Bank of Nigeria (FMBN), Federal Inland Revenue Service (FIRS), Nigerian Deposit Insurance Corporation (NDIC), Investment and Securities Tribunal (IST), Nigerian Investment Promotion Council (NIPC), National Insurance Commission (Naicom), National Pension Commission (Pencom) and FSS2020 among others.
Director-General, Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, who spoke at a briefing on the activities and decisions at the CMC in Lagos, said the CBN and SEC had launched formal discussions on a dual licence model that enables stockbrokers to have access to the discount window of the apex bank.He said all parties have shown commitments to the evolution of the new framework, although discussions were still on to determine the scope and comprehensive details of the new framework.Gwarzo said the new model will boost liquidity in the capital market and enhance the risk creation and management of stockbrokers as they will be able to have access to the deep pool of capital provided by the discount window.He noted that one of the major challenges in the capital market has been access to liquidity and the introduction of dual licence model will significantly address the problem of liquidity and related issues.“Our discussion with the CBN is yielding positive result and we commend the Central Bank for their commitment and dedication to the project, but the discussion is still ongoing,” Gwarzo said.
Capital market -based intermediation has been much less efficient in Nigeria as operators face significant challenges accessing wide sources of funding and thus have very inefficient sales and trading operations or maturity transformation activities.The new framework may allow brokers and dealers to undertake and offer similar range of products and services as investment banks. This convergence will strengthen stockbrokers’ potential to capitalise on larger business opportunities, diversify their source of funding and enhance their market making capabilities in the capital market.The introduction of the new framework is expected to impact positively on the macroeconomic development as it will enhance the capabilities of domestic capital market intermediaries to contribute towards the development of a more resilient, competitive and dynamic financial system.Gwarzo added that the Commission and other stakeholders have also initiated a pilot electronic reporting and circulation system that could save quoted companies between N500 million and N1 billion in costs of printing and dispatch of annual reports to shareholders.
According to him, the current system of printing and distribution of annual report has proven to be obsolete and ineffective.“We have been doing something for the last 50 years which is not helping the companies or even investors,” Gwarzo noted.He pointed out that the total number of investors that had registered for e-dividend by the end of July 2017 stood at 2.1 million, including total unique investors by account of 838,671 and total unique investors by Bank Verification Number of 433,164.He reiterated the directive of the Commission that all trading of unquoted equities must be done on recognised trading platform, warning that the Commission will no longer accept sales of shares outside recognised trading platform.“Our rules stated that no share of public company either listed or unlisted should be trading outside a trading floor registered by SEC. It is an offence for those shares to be exchanged outside a recognised platform,” Gwarzo said.He noted that the rule on trading in unquoted securities is in the interest of investors, pointing out that while the company may not necessarily be listed, the market-determined pricing system will enable investors to have fair value for their investments while allowing the financial services regulators to have a comprehensive view of trading activities.