Vanguard (Lagos)

Nigeria: Shareholders Raise Concern Over Shares' Price Manipulation

Shareholders in the nation's capital market have expressed concern over manipulation of shares' price on the Nigeria Stock Exchange

Their concern is based on the way and manner stocks in the portfolio of the recently constituted Market Makers are experiencing price appreciation on daily basis.

Consequently, they cautioned the Securities and Exchange Commission, SEC, and the Nigerian Stock Exchange, NSE, to ensure adequate control over the activities of the market makers whom they said are being used to create the another bubble in the market.

Mr. Augustine Anono, Chairman, Nigeria Professional Shareholders Association, NPSA, warned that the rate at which the stocks covered by market makers are going up is not good for the market.

He said that he is worried by the regular increase in the prices of shares in the portfolio of market makers that hitherto were not doing well as a result of poor balance sheet.

"If we don't take time, we might go back to what happened in 2008 because there are some stocks that are not doing well and yet they are being traded on the floor. Yet, we know that the fundamentals of the capital market are centered on demand and supply.

"There are some stocks that don't have the fundamentals to declare dividend for the next two years and with a weak balance sheet, yet they are traded on the floor. The market makers should beware because if what happened in 2008 repeats itself, the market will collapse," he warned.

He agreed that though the market makers are there to create activity on the stocks under their control, he said that some of the stocks have existing problem that will impede their growth if the market is allowed to run naturally, "For instance, DN Meyer Plc got its factory burnt two years ago, and the insurance companies have not paid their claims. The company is still planning to put infrastructure in place in order to start production, yet the share price is still rising.

He noted that the share price of DN Meyer has grown from 50k as at the time the market makers took over the stock, to over N3.40, arguing that such stock do not have the prospect of generating dividend for investors.

"So, if you buy that stock, how do you think the stock will generate dividend? Let the system favour those on long term investment because the rate at which the stocks are going up is not good. If we don't take care, the system might crash again.

"The stocks that are supposed to be gaining are those declaring dividend. How can we be encouraging companies to pay dividend? There are some companies that are not sure of paying dividend in the next two years and yet the directors earn their salaries. The regulators too have their own problem. I am yet to see where any director is sent to jail. By the time fraudulent directors are sent to jail, everybody will seat up. Fraudulent auditors should also be sanctioned for giving investors wrong information," he added.

Speaking in the same vein, another shareholder, Chief Robert Igwe, averred that some of the programmes being initiated by the Nigeria Stock Exchange to revive the market are too complex and shrouded in secrecy. He said that the NSE couldn't provide answer to some of the questions directed at them when they called shareholders to brief them ahead of the commencement of market making.

He said, "We even requested to know the criteria for choosing those stocks categorised as market making stocks, but they couldn't answer us. I think the stocks they picked were those they want to favour by creating false activity on them to attract unsuspecting shareholders and then exit like the period prior to 2008.

"If care is not taken, the way these stocks are galloping, even the ones that do not have the fundamental, they will crash this market again."

However, Sir Sunny Nwosu, National Coordinator, Independent Shareholders Association of Nigeria, ISAN, thinks otherwise, as he argued that the market makers even have difficult task creating equilibrium in the market.

He said, "If people think that something is going wrong with what the market makers are doing, then they must have seen some signs to warrant such opinion, but for me, the market makers are there to absorb excess shares that come to the market. In most cases,if they buy today and tomorrow the price falls, it becomes a problem for them. I don't know what informed their opinion of those people that are talking about bubble, but for me, I have sympathy for the market makers." He insisted that fundamental is secondary in emerging market like Nigerian capital market, saying that different people have different reasons for making investment decision.

"The market is for capitalists; fundamentals are secondary in an emerging market like ours. Some people might have researched into it and see that there are no good fundamentals, but there is something they are looking for. It might be to buy into the company to turn it around and become a major shareholder or there might be other values they are looking for in the company. That is the uniqueness of our market," Nwosu maintained.

For Sola Abodurin, the market makers should be allowed to stay for some time, saying "market making just started. We should give it sometime before we start commenting."

Mr. David Adonri, a senior stockbroker and Chief Executive Officer, Lambert Securities and Investment Limited agreed with these views. He said that market making is a tool to forestalling volatility and asset bubble formation in the equities market, it cannot become a tool to fuel asset bubble. He assured that with time, stakeholders will come to terms with the way market making operates.

Meanwhile, all attempts to get clarification from the spokespersons of the Nigerian Stock Exchange, Securities and Exchange Commission and Central Securities Clearing System failed as none of them responded to text messages sent to their cell phones.

Position of Stocks in market makers' portfolio

Indeed, stocks covered by market makers have recorded price appreciation since market making started two months ago. The Managing Director, Financial Derivatives Company, FDC, Mr. Bismarck Rewane, said in his latest review of the Nigerian capital market that since the commencement of market making, market capitalisation has increased by five percent to N8.5 trillion in November. The All Share Index (ASI) also grew by 1,418.44 points to 26,792.27 after growing by a monthly average of 1,396.42 points in the three months prior to the programme. The average volume of the stocks available to the market makers traded during the period under review declined by 3.87 percent to 8,172,842 points from the corresponding period before the market making programme started. The average values of these stocks increased by 6.94 percent to N79, 274,481 for the same period.

Reports have shown that the market making scheme is yet to re-route trading from stocks that are heavily traded to the other stocks. Access Bank, Guaranty Trust Bank, Fidelity Bank, First Bank and Zenith Bank accounted for 22 percent of total volume of stocks traded in the market between July 30 and September 17. During the 34 days review, these stocks constituted 31 percent of total volume traded. On the commencement of market making, 19 stocks were chosen. These are; PZ Cussons Nigeria Plc, Nigerian Bag Manufacturing Company Plc, Presco Plc, International Breweries, Lafarge Wapco, Fidson Healthcare Plc, Redstar Express Plc, Zenith Bank Plc, Sterling Bank Plc, D.N.Meyer, Diamond Bank, FCMB, Fidelity Bank Plc, Nigerian Breweries Plc, Guaranty Trust Bank Plc and UAC Nigeria Plc. (UACN).

On October 4th, another nine stocks were added, namely Access Bank, Academy Press, Custodian & Allied Insurance, First Bank Plc, Dangote Sugar Plc, Union Bank Plc, NASCON and Nestle Nigeria Plc as well as AIICO Insurance Plc. This brought the number of stocks to 25. Three more stocks were added on 18th October namely United Bank Plc; Ecobank Transnational Plc and Skye Bank Plc were also added to the list. Another two, 7up Bottling Company Plc and UAC-Property Development Company Plc were added on November 1st, while Dangote Flour Mills Plc, Unity Bank Plc and Prestige Assurance Plc were added on November 15th to bring the total to 33.

Justification for market making initiative

In order to stem the tide of waning investors' confidence, soak up excess shares, as well as create liquidity in the market, the Nigerian Stock Exchange on 18th September launched the market making initiative. The NSE also took steps to increase circuit breakers (limit placed on daily share movement) from five to 10 percent, while also introducing Short Selling and Security Lending to compliment activities of market makers. Mr Olumide Lala, Head, Transformation and Change, NSE, who announced the take-off date for the market making initiative, said that the policy would play a central role in the provision of two-way quotes (comprising of buy and sell prices) for the securities that they are making markets on. He explained that leveraging the Securities Lending process, Market Makers would be able to borrow securities in order to settle 'buy order imbalances' from customers. Rationalizing the importance of Securities Lending in the Market Making initiative, Lala said that it would provide for lending and borrowing of securities which in return would enable investors earn returns on their 'idle' stocks whilst contributing significantly to market liquidity and price efficiency through legitimate investment activity in covered Short Selling.

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