Nigeria’s capital markets
The Nigerian Stock Exchange (NSE) All-
Share Index had been among top world performers in 2008 but crashed by 70% in 2009; a year when the global financial crisis caused markets worldwide to plummet, and the resulting ebb-tide on the Nigerian capital market revealed many of the problems that rising prices had kept out of sight. The clean-up began in August 2009 as Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi (appointed in June 2009) moved quickly to take control of many key banks and to sanction executives involved in unlawful activity. The SEC cooperated with CBN and
then stepped up its own efforts to clean up the capital market, which was dominated mostly by bank stock. This had severe consequences on investor confidence as bankers and stockbrokers had participated in infractions which undermined the market. To reverse the development, the SEC team of experts, in collaboration with the CBN, private sector lawyers and accountants, embarked on a market sanitization campaign spanning the first half of 2010. Oteh says technology, careful planning
and sharing information were crucial to the success of the exercise: “We were very keen to ensure that the investigations were so thorough, such that it would be hard for anyone to get away with any allegation of market abuse.” The SEC alleged that 30 firms and some 230 individuals, including many executives of rescued banks, had committed market infractions and is now campaigning to seize illegal profits so it can restitute investors. She said; “Our message is clear and unequivocal, forthwith; market regulation will be effective and firm. It is no longer business as usual.” The investigations also exposed
problems at the NSE, which was threatened by growing financial mismanagement, rifts, legal wrangles and concerns about its corporate governance. Consequently, a series of court cases ensued which vetoed the appointment of businessman Alhaji Aliko Dangote as Chairman of the Exchange, who in turn alleged financial mismanagement. In
August 2010 the SEC intervened, asking the leadership of the NSE to step aside. An interim administration was
appointed with a mandate to restore governance and stability until the appointment of a new leadership team. After a rigorous selection process supported by the SEC, Oscar Onyema was appointed CEO and took office in April 2011. Adeolu Bajomo joined as Executive Director, Market Operations and Technology in May with the aim of upgrading the Nigerian Stock Exchange by the third quarter of 2012. The new leadership team at the NSE has outlined a credible plan to build a stock market with US $1 trillion market capitalization by 2016.
“For us it was important to focus on rebuilding market
integrity and thereby restore investor confidence”
International investor Mark Mobius, Executive Chairman of Templeton
Emerging Markets Group, told Africa investor: “There is a continuing need for legal, institutional and regulatory reform. There is a need to reduce bureaucratic bottlenecks and introduce more efficient operations.” He pointed out bureaucracy and corruption, property rights, tax, banking systems and the Central Securities Clearing System as bottlenecks which needed to become more efficient, but praised the progress being made. Quintus Kilbourn, Head of Equities,
South and sub-Saharan Africa at Citi, also commended the progress: “The SEC, under the guidance of Ms Oteh, still has its work cut out in developing depth in the Nigerian capital market and encouraging compliance in corporate governance. But they have made certain strides such as the announced plan to install a framework for Islamic financial products and encourage states to issue bonds.” “The appointment of new and credible management at the NSE was another key
step in the right direction. They’ve also increased visibility.” Oteh says the SEC wants to make sure
the transformation programme goes well, “given that we consider the Exchange a visible symbol for the Nigerian capital
market...The actions that we took to address the challenges that the NSE was facing…have rebuilt market integrity but, more importantly, we see that investor confidence is improving.”
The new capital market will be built on five pillars:
Investor protection and enforcement
The SEC is stepping up skills and technology to investigate what Oteh terms “sharp practices”. It works closely with other institutions, including the Central Bank of Nigeria and the Financial Sector Regulatory Coordination Committee (FSRCC), which bring the SEC and CBN together with regulators for pensions and insurance and the Ministry of Finance. Those found violating the capital
markets rules and ethics are punished with warnings, fines and suspension from trading. The SEC is building cooperation with the Nigerian Police Force as some misconducts result in criminal prosecutions and prison. Another deterrent that works well is “naming and shaming”, or publicity of outcomes in line with international standards. The SEC’s goal is to be perceived as fast and fair and to teach violators there are high costs to flouting regulations. The number of SEC staff dedicated to enforcement is benchmarked against top regulators worldwide. Nigeria’s SEC is a leading member
of the International Organization of Securities Commissions (IOSCO), which brings together regulators from over 100 markets. Oteh chairs IOSCO’s Africa and Middle East Regional Committee, one of four regional committees, and Nigeria is one of a few African regulators listed as Appendix A signatories of IOSCO’s Multilateral Memorandum of Understanding.
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