24 December 2012

Nigeria: NSE in 2012 - Efforts At Recovering Lost Gains

Hopes by experts, as well as market observers in the Nigerian capital market, that transactions in equities would rally more in the year 2012 can be said to be a dream coming to pass, as recent activities on the stock market showed a gradual return of confidence.

This is because transaction on the Nigerian Stock Exchange (NSE) akin to the preview of experts for the year under review has continued to sustain trajectory as the market which opened low at N6.513 trillion in market capitalisation and 20,671.06 in index at the beginning of trading on 3rd of January 2012 closed on Tuesday December 18 at N8. 767 trillion and 27,437.76 index points, hence has recorded year to date gain of about N2.254 trillion or 25.7 per cent.

The regulators and the Exchange have tried to apply some measures in seeking to reposition the market for growth and development as well as increase the dividend yields of shares to investors during the year under review.

Since the assumption of office of Mr. Oscar Onyema as the new Chief Executive Officer of the NSE last year April, the bourse has continued to experience reformation aimed at restoring investors' confidence and improving the current low market capitalisation.

New listing rules

One of such reforms was the decision of the NSE to review its listing rules for companies, to accommodate international standards. And in February this year, the Securities and Exchange Commission, (SEC) capital market regulator, approved the amendments proposed by the NSE to its Listing Rules as part of its initiatives to achieve targeted goals.

The NSE had embarked on a number of new initiatives, including reinvigorating business development in order to achieve a market capitalisation of one trillion dollars in five years, paying more attention to rule drafting and interpretation for market participants, aggressively pursuing the listing of privatised government entities and significant corporations in different sectors; reviewing the current market segmentation to be more reflective of global industry classifications as well as increasing market accessibility to attract greater foreign participation, among others.

A fundamental requirement to drive these initiatives was a set of listing rules that are attractive to quality issuers on both the Main Board and the Alternative Securities Market (ASeM).

The NSE CEO, Mr. Oscar Onyema said that the NSE embarked on reviewing the listing rules because some of the Exchange stakeholders including prospects, listed companies, issuing houses, and brokers had asserted that the listing rules of the NSE were rigid.

According to Onyema, the requirement that companies must have a five-year financial and operating track record had been cited as a hindrance to many companies that would have been listed on The Exchange. Specifically, this was said to have led to the exclusion of some exploration and production companies which are not in a position to provide such records.

The NSE boss explained further: "Our research reflects that many leading Exchanges have greater flexibility than we do, particularly on the quantitative requirements in the area of profit, market capitalisation, price, public float, among others."

The General Manager, Listing Sales and Retention, Mrs Taba Peterside, explained that the main board listing requirements for New York Stock Exchange, London Stock Exchange, Johannesburg Stock Exchange, Singapore Stock Exchange, NASDAQ and other leading Exchanges were reviewed vis-a-vis the NSE's, stressing that alternative board listing requirements for Alternext (New York Stock Exchange), AIM (London Stock Exchange), AltX (Johannesburg Stock Exchange), ACE (Malaysia Stock Exchange), Catalist (Singapore Stock Exchange )and other leading Exchanges were also reviewed vis-a- vis ASeM.

Shedding more light on the amendment, Peterside said that the new Rules determined quantitative criteria suitable for The Exchange in comparison with other Exchanges and an analysis of current listed companies over a three-year period. The Exchange also consulted widely with existing listed companies, prospects and other industry stakeholders. She expressed the belief that the new listing requirements would act as a major catalyst to attracting new companies to list on The Exchange.

Appointment of market makers

The NSE in April announced the names of 10 market makers, as part of efforts to bring back liquidity and depth into the embattled market.

Onyeama said the move, which was approved by the SEC, "is a great milestone and a major step in the direction of turning the market round to have liquidity and depth back into the market. We will continue to move forward on this".

According to the NSE, the 10 stockbroking firms were selected from a list of 20 that had applied last year.

The market makers as announced by the NSE are Stanbic IBTC; Renaissance Capital; Future View Securities; Vetiva Capital; ESS/DunnLoren Merrifield; WSTC; Capital Bancorp; FBN Securities; Greenwich Securities and CSL Stockbrokers.

"The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million, we also examined their compliance history and looked into their operational capabilities including their technology and processes," he said.

He added further that the selected firms were taken through trainings, debated the appropriate market structure to be used and the Exchange further went through the approval of the Securities and Exchange Commission in the selection process.

A major highlight of the unveiling was the selection of a basket of quoted companies in which the financial intermediaries would provide the desired level of liquidity via a blind draw.

The Exchange added that the primary obligation of the Market Maker was to always make a two-way price in each of the stocks in which they make markets.

The market makers which commenced operation at the end of third quarter required to quote a buy and a sell price for each of the securities in which they make market. They are also obligated to buy and sell any particular financial asset at their displayed bid/offer rates.

Forbearance package

Some operators in the nation's stock market had at different fora reiterated the need for an intervention fund from the government to help mop up the excess shares in the market to facilitate market stability.

They agreed that the market could only regain its lost glory if the authorities provided a bailout fund to stabilise the market as it was done in the banking and textile industries, adding that the fund would boost the market and help restore and sustain investors' confidence.

The Coordinating Minister of the Economy and Finance Minister Dr Ngozi Okonjo-Iweala, at the tail end of the last quarter fulfilled part of the federal government's promise to work out a forbearance package for stockbrokers as part of measures to stimulate confidence in the Nigerian stock market and increase liquidity.

This the government did by the recent announcement of the N22.6 billion debt relief for 84 Stockbrokers and a 12 per cent tax exemption on stock trading activities which attracted commendations from the operators in the local bourse and also confirmed analyst's forecast that the action would provide the much needed tonic to ginger activities on the floor of the NSE.

The Nigerian Capital Market, riding on the back of forbearance package and market making process responded positively and continued on the upbeat but for few days of profit taking since the news broke to investors.

Speaking to LEADERSHIP on the review of activities of the market in the in 2012, the Managing Director, Crane Securities Limited, Mr Mike Okpara Eze said both the market making process and debt relief package acted as a tonic to make the market more vibrant and bullish as investors came in to take position on different stocks particularly the banking sector.

He noted that most banks posted excellent results which consequently led to a quantum leap on their share prices and helped to lift other sectors in the market.

"Some of the banks paid interim dividends as a result of their good performance. GTB, Access Bank are good examples. Union Bank that has been posting negative results in the last couple of years posted a Q3 result that is excellent as a result their price moved from N4.50 to N9.23.

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