Vanguard (Lagos)

11 December 2012

Nigeria: The Nigerian Capital Market and the Small Investor (II)

The regulatory powers of the Securities and Exchange Commission, SEC, under the Investments and Securities Act, ISA, 2007 are still evolving and it has been observed that there are inadequacies and gaps in this law.

During 2010, the Federal Government set up a committee for the review of ISA 2007. Regrettably, this committee was not allowed to complete its work.

One significant issue that has been raised in the last few years is the conversion of the Nigerian Stock Exchange, NSE, from a company limited by guarantee to a public limited company, a process that is described as demutualisation. Given that the NSE started its life as the Lagos Stock Exchange in 1961 with an Act of Parliament, demutualisation should now also be by an Act of the National Assembly.

ISA 2007 should be revised such that it would specify the process of demutualisation, what self-regulation would entail for a public limited company and the limits, if any, on individual shareholding in the public limited company.

Dispute resolution provisions of ISA 2007 have given rise to complaints, especially in respect of disputes between capital market operators and their clients. Such disputes are to be taken first to SEC and a decision of SEC on a dispute can be taken on appeal to the Investments and Securities Tribunal, IST.

Investors have complained that decisions may not be forthcoming from SEC and at a forum organised by IST in December 2008, the Chairman of IST remarked that IST might consider "no decision" from the SEC as a "decision" and then proceed with an appeal.

In my view, it would be preferable to return to the 1999 version of ISA which allowed disputes between capital market operators and their clients to be taken directly to the IST. There have also been instances in which SEC has been described as having the roles of complainant/accuser, prosecutor and judge in a matter.

The process of dispute resolution at SEC should therefore be restructured such that there is a body in permanent session with procedure rules similar to those of IST and which body will adjudicate disputes separate from the investigatory role of SEC. The decisions of this body can be taken on appeal to the IST.

There have been suggestions that certain companies in the telecommunications sector and the oil industry must be made to offer their shares on the NSE. Will these companies want to raise funds on the NSE rather than by way of syndicated bank loans? Are these companies so profitable that there would be a benefit to investors in the companies?

We should recall that a few years ago, a major oil company indicated that it had overstated its crude oil assets leading to a drop in its share value. Why is it that companies that have raised funds on the NSE lately have done it by way of rights issues?

I recall that at the Annual General Meeting of UAC of Nigeria Plc held inIbadanin May 2005, one of the shareholders raised issues as to the performance of the company based on such criteria as earnings per employee, etc. The Chairman at that meeting did not quite provide the answers required but rather suggested that such a shareholder would be an asset on a board committee. The regulators can assist shareholders in bringing about improved performance in companies by ensuring that such issues are addressed.

The question also arises that we may have a good law but how do we get the regulator to do his/her work or what options should be available when we find that the regulator is not doing his/her work.

Our experience with the Nigerian Constitution is a pointer in the direction we should go. When the 1979 constitution was being drafted, it was proposed that the constitution should make it compulsory for government to provide schools, hospitals, roads, housing, water supply, power supply and other social infrastructure for the population.

This proposal was dropped and replaced with provisions that indicate that government is advised to provide these facilities. It was argued that the compulsory provision would invite too much litigation against government.

Unhappily, we have a situation today in which all government is required to do is get a budget passed from one year to the next but government does not have to achieve anything for the people.

A revised ISA should therefore allow individuals to bring action before IST to compel the regulator to do his/her work.

Also, the Companies and Allied Matters Act should be amended to allow individual shareholders to bring action to compel the directors of a company to pay back misapplied moneys when directors act in a manner that has been expressly forbidden by statute.

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